By George Flaskerud, Crops Economist
North Dakota State University (NDSU) Extension Service

The USDA released its latest supply-and-demand report on June 9.
The stocks/use ratios decreased for wheat and corn relative to a month ago, but increased slightly for soybeans. Relative to trade expectations, ending stocks of wheat, corn and soybeans were well within the ranges of estimates, but a little below the averages.
Since the findings were anticipated, the report's impact on prices should be minimal and the market's attention should return to growing conditions around the world.

The good/excellent ratings were favorable as of June 4 for all U.S. crops except winter wheat. The rating only was 27 percent for winter wheat (down 1 percent for the week), 69 percent for spring wheat (down 4 percent), 74 percent for barley (down 2 percent), 71 percent for corn (up 1 percent) and 70 percent for soybeans (initial rating).

Saskatchewan crop conditions as of June 4 also were very favorable for spring wheat and durum, with 88 percent rated good/excellent, according to Saskatchewan Ag and Food. Although the ratings were good as of June 4, concerns about dry conditions across parts of North Dakota began surfacing after the report was released.

Given the favorable ratings, Minneapolis December wheat futures set a high in May at $5.01, which was $1.36 more than the November low and closed at $4.73 on June 8. December corn futures reached a high in May of $2.87, which was 49 cents more than the December low, and closed at $2.71 on June 8. November soybean futures have traded between $5.75 and $6.48 since last November and closed at $6.16 on June 8 after reaching a May high of $6.39.


The USDA projected a 2006-07 seasonal average farm wheat price of $3.60 to $4.20 per bushel or 10 cents above a month ago. For corn and soybeans, the projections were left the same as last month at
$2.25 to $2.65 and $5.10 to $6.10, respectively.

Consider making additional preharvest sales on rallies at least above June 8 price levels, especially if few sales have been made and northern Plains growing conditions continue to be favorable.
Although prices have come off their highs, they still are fairly good relative to the USDA's projected seasonal prices. Futures prices at June 8 levels should result in cash prices that are at least at the midrange of USDA projections adjusted to North Dakota.

Conversely, consider buying wheat and corn call options on market weakness, especially if substantial preharvest sales already have been made. Weather and the outlook for a tightening level of stocks have the potential to drive prices higher. September calls three strikes out of the money on June 8 would have cost 15 cents per bushel for Minneapolis wheat and 8 cents for corn. Soybeans are left out of this strategy because the outlook is for ample stocks. The potential for weaker prices may be greater for wheat than corn because substantial winter wheat harvest sales are likely due to relatively strong prices.

Changes in the 2006-07 balance sheet for wheat reduced the stocks/use ratio from 21.6 percent in May to 20.3 percent in June versus 25.1 percent a year ago. During the past month, projections of planted and harvest wheat acres remained the same, but the yield per harvested acre was reduced from 40.6 to 39.3, reflecting a hard red winter wheat production estimate that was reduced by approximately 8 percent. The decrease in production that resulted was partly offset by a decrease in feed and residual use. Although 2005-06 all-wheat ending stocks remained unchanged from last month, changes were made by class (increased for hard red winter and soft red winter, but reduced for the others). Projections for 2006-07 spring wheat, durum and the other classes will be reported on July 12.

The 2006-07 wheat export projection was left the same as a month ago at 900 million bushels, although exports are expected to be down 100 million bushels from a year ago because of limited supplies and higher prices. World wheat trade is expected to be about the same as a year ago, although reduced imports are projected for North Africa (bad news, especially for durum), the
EU-25 and the wheat-feeding countries of South Korea, Israel and the Philippines (limited supplies of low-quality wheat). The reduced imports are expected to be offset by increased imports by India. The Ukraine and Russia are expected to export considerably less because of production problems. Increased exports are expected by the EU-25, Canada, Argentina, Australia and Kazakhstan. Australia needs to be watched because it is experiencing some dry conditions.

World ending stocks for 2006-07 wheat were left nearly unchanged from a month ago, but are down about 11 percent from a year ago.
Low ending stocks are likely to contribute to wheat price volatility throughout the year. At 128 million tons, ending stocks are projected to be the second lowest in 25 years.

For corn, the only change in the 2006-07 balance sheet from a month ago is a 50 million bushel decrease in beginning stocks.
Corn use is expected to be a record because of increased ethanol production and increased exports relative to a year ago. Corn use for ethanol is expected to increase 34 percent, which follows a
21 percent increase last year. Exports are expected to be the highest since 1994 to 1995 because of less competition from Argentina, China, South Africa and feed-quality wheat. As a result of record use, stocks are getting tighter, with a stocks/use ratio of 9.4 percent projected versus 9.8 percent last month and 20.2 percent a year ago.

Barley and oats each had a 5 million bushel increase in beginning stocks, which was the only change in their 2006-07 balance sheets relative to a month ago. Seasonal average prices of $2.45 to
$2.85 and $1.60 to $2 were projected for barley and oats, respectively.

Global coarse-grain ending stocks for 2006-07 are expected to decrease significantly from a year ago (24 percent), but remain essentially unchanged from last month. A stocks/use ratio of 13 percent is projected versus 17.5 percent a year ago. China is expected to continue being a net exporter of coarse grain.
Although China's coarse-grain ending stocks have been drawn down sharply during the last few years, they still are expected to have more than two months of use on hand.

For soybeans, a 5 million bushel increase in beginning stocks was the only 2006-07 balance sheet change from a month ago. The soybean crush is projected to be a record and exports are projected to be just short of the 2004-05 record, so the stocks/use ratio is expected to be 21.8 percent versus 21.7 percent a month ago and 20.5 percent a year ago.

Helping U.S. exports and soybean prices was a smaller-than-expected Brazilian crop. The 2005-06 production estimate for Brazil was reduced to 55.7 million metric tons from
56.5 million a month ago.

Use of soybean oil for biodiesel is growing and becoming a more significant component of crush. There are at least 65 biodiesel plants operating, according to the USDA. During the next 18 months, another 50 plants under construction or planned could more than double U.S. production. The USDA's projected 2006-07 domestic use of soybean oil is approximately 6 percent higher than a year ago and 9 percent higher than two years ago. The high level of use is expected to reduce the substantial inventory of soy oil, although it is expected to remain higher than two years ago. The result is fairly strong soy oil prices relative to the level of stocks on hand. The USDA is projecting a soybean oil seasonal price of $22.50 to $26.50 versus $23.25 last year and
$23.01 two years ago.

Strong soybean oil prices should help sunflower and canola prices, which are benefiting from supply-and-demand situations.
As of June 7, NuSun bids at Enderlin were $10.25 per hundredweight for old crop and $11.50 for new crop. Canola bids at Velva were $11.14 per hundredweight for June and $11.27 for October/November.