Grain Market Report 12Feb2011 and Some Thoughts on World Food Supply

Tanner Sheahan
CPS Tangent

It's been a busy week.  I haven't had the chance to post Dan's market reports for a few days.  Grain prices were strong all week ending Friday just slightly lower, like they usually do.  As of Friday, SWW to Portland is $8.80-8.90 from now to May.  June is $8.80 and the price trails off through harvest ending up at $8.65 for August but $8.70 for September.  New crop 2012 was at $7.56 yesterday.  Prompt prices peaked Thursday at $8.95 for May and N/C 2012 peaked Wednesday at $8.29.

There's lot going on around the world including fear of a repeat of the 07-08 food crisis and the resulting riots in countries where people spend a significant percentage of their income on food.  Here's a good article from the New York Times about India's need for agronomic advancement (beyond those brought by the Green Revolution 30-40 years ago) to keep up with it's population.  This article from the Wall Street Journal talks about China's recent and fairly significant grain imports.  China has long been the largest wheat producer (not exporter) but stands a distant second in corn production.  Even so, Chinese grain imports have been minimal until last year.  Kalama Export Co, the site we toured last week north of Portland, is currently exporting millions of bushels of soybeans to China.  When you consider not only more mouths to feed around the world every day but an increasing desire in developing countries for a higher standard of living (better food, more meat, greater technology) coupled with increased demand from biofuels and a widespread (and largely unfounded) fear of biotech crops...its a mounting challenge for agriculture to keep up on diminishing acres.

Here are Dan's market reports for the last few days:

9Feb2011

Corn expected to lead the charge this morning (called up 25-30). USDA has reduced ending stocks down another 61 myn bu to 675 myn bu. The S&D’s will show the additional demand coming from Food/Seed/ Industrial…where ethanol makes up 50 myn bu. Clearly the price still is not yet high enough. World corn is also a bit lower. USDA did take Argie corn lower as the drought earlier will take its toll. Later rains will help in portions of Argie…but for some areas the damage was done a month ago. Overall Argie corn down 1 myn mt…but we can certainly expect more reductions in the future. Wheat and Beans were neutral, but will rise with the ‘tide’ of corn.
Wheat carryouts are guessed at 818 vs. 810 last month. World wheat stocks are largely unchanged with only minor tweaks. No reductions yet noted in China, but there are 5 provinces under ‘severe drought watch’. The FAO says that there are some 12.5 myn acres potentially affected. Internal Chinese wheat/ flour prices up 8% in the last 2 months.
Please call for updates….
 10Feb2011

Corn broke through a psychological barrier this morning and is currently at $7.03. Attached is an updated version of the S&D’s. One other small item, while doing some minor tweaking to the US wheat S&D’s, they did take SWW exports up another 10 myn bu, which brings our SWW c/o down to 73 myn bu. There is no doubt that Bio-fuel usage is price positive, and government actions continue to drive that industry. State of Oregon is proposing a 150% increase in mandatory Bio-diesel (from 2% to 5%). We have discussed the ethanol subsidies before and Andersons’ Inc. (major grain player back east and in the south) announced record profits led by ethanol…$81.4 myn this year vs. 51.4 myn last year. Increased demand for DDG’s also helps the profitability. By all accounts it seems that USDA will quite likely still need to increase corn used for ethanol by perhaps another 50 myn bu, unless the economics change. Sales report this morning showed strong corn numbers of 43.3 myn bu (price has not yet trimmed corn exports, and previous dry weather in Argie will funnel more business this way). Wheat sales were ‘puny’ with only 14.4 myn bu. Japan was in last night and booked 1.4 US HRW, 3.5 DNS and the balance  (6 myn bu) Canadian WRS. Okie will see record cold weather today as temps drop to -27. Snow in this area is about 8-15” deep.
           Int’l news: Nat’l bank of Kazakhstan forecasts inflation at 6-8% this year. Chinese grain futures were up the limit before the USDA report. Their Ag dept says that 80% of the production areas are facing some sort of drought issue. They must be taking it seriously, here is a partial list of some of the steps the Gov’t has taken: 30,000 new wells in Shandong province. Wheat payments up 8-10% to encourage more plantings, cash to irrigate, more cash to plant wheat and corn vs. other crops, special fund to help fight crop disease, $180 myn to help buy new equipment, $1 byn to aid in drought alleviation, raise rice minimum support price by 40%, and ohh 1 other thing, the Gov’t will educate the farmers…hmmmm. Weatherman sez light precip across much of the region the next few days.

***Didja Know…more US Ag; In 1950 corn yields ave 40 bpa, in 2010 164.9 bpa…From 1987 to 2007 American farmers produced 40% more corn, 30% more beans and 19% more wheat on the same number of acres. In 1940 1 farmer produced enough food for 19 people, by 1970 it was up to 73 people and by 2010, 1 farmer produced enough food for 155 peoples!
11Feb2011

Mubarak officially resigns. Overnight Egypt held a snap tender and even though gov’t claimed 6 month supply, they booked 6.2 myn bu for April shipment. Aussie scored 2 myn, US sold 2 myn SRW and Canada bagged 2.2 myn bu. Tunisia booked 1. 5 Aussie wheat and Algeria completed their tender for 7.3 myn bu (optional origin I believe). US also sold 4.4 myn bu of corn to the EU in one of the largest corn sales to them in recent memory…this market has a LOT of work to do, to ration demand for corn. China will have to import more DDG’s or Aussie feed wheat as US corn supplies continue to shrink. Some analysts say they expect a ‘blow off top’ will be necessary, perhaps. If it comes to that, it won’t be pleasant. As of last night US corn was up 18 on the week, with wheat up 11. With weather, planting conditions, acreage shifts, the huge spec positions, crop scores, economics and political turmoil…the deck is stacked with wild cards.
           Int’l Scene; Though the driest parts of China have only received minimal precip so far, the weather man is looking on China in a much more favorable light the next 2 weeks. SIGNIFICANT precip is on the way. ½” to 2.5” of precip in the way of rain/ snow will hit Henan and S. Shandong. On the year so far the EU wheat exports are up over 32% vs. last year. As we keep watching the weather and spring start to unfold, Canada will move closer to the front. Most of the southern Canadian prairies were WET last fall. Right now there is about 30” of snow over most of the areas. That snow is particularly ‘heavy’ with a minimum of 2-4” of precip in it, some areas are rated in the 4-6” range. A quick spring will bring HEAVY flooding. Warm days, with freezing nights would work out best. Weather man says the La Nina will ‘lighten’ up for the next month or so, but will not go away…and chances are that heavy precip will return to the northern tiers states/ Canadian prairies by May or so. Just another thing for the markets to deal with.

***Didja Know: EIA showed a 4 myn bbl build in just gasoline last week (due mostly to the reduced usage from the blizzard). China currently consumes 25% of the ENTIRE US bean crop. Since 1970 US farmers have produced 70% more corn with the same amount of fertilizer and 50-80% less water. Farming is an industry where a 1,000 things need to go right, but only 1 thing to go wrong.