Soybeans now driving market dynamics A new report on world agricultural


“We are looking at a situation where


supply and demand estimates issued by the Agriculture Department is set- ting up what could be an interesting new crop market dynamic, according to economic analysis from the American Farm Bureau Federation. The WASDE report was largely


unchanged on the corn and feedgrain side and was generally viewed as neu- tral, but on the soybean side, supply esti- mates were reduced and U.S. exports increased to help make up for smaller South American crops, according to AFBF Economist Todd Davis.


soybeans, rather than corn, could very well become the market leader in the U.S. grain and oilseed complex,” Davis said. “Typically, corn prices usually help drive the market prices for the other grain and oilseed commodities, but given what we now know, soybeans are ready to move to the forefront.” Davis explained that the report, coupled


with prospective planting estimates from late March, indicate the United States is in rebuilding mode in regard to the nation’s corn supply, as U.S. farmers are expected to plant 95.9 million acres. This represents


Wool prices declining The price of wool has fallen sharply


and some in the industry think it may continue to fall due to a number of mar- ket forces. The indicative price bench- mark, the Australian Wool Exchange’s Eastern Market Indicator, lost 21 cents, falling to 1191 cents per kilogram clean in recent sales. New England Wool’s Andrew Blanch


said the next sale will be the biggest in more than a year, with 56,000 bales offered nationally. With so much wool, there could be a large percentage of the fiber passed in at auction. “They’re probably not confident to


buy any wool that they don’t require. Stock is a dirty word again,” Blanch said. “Certainly the buyers overseas are wait-


the highest corn acreage since 1937. But soybean supplies are likely to move in the opposite direction and become much tighter next year as 2012 U.S. soybean plantings are expected to decline by more than a million acres compared to 2011. Complicating the picture has been the drought that has already cut into South American beans. Soybeans were clearly the newsmaker


in this April WASDE report. The U.S. soy- bean ending stocks number was reduced by 25 million bushels to 250 million bushels. The decline was due to an increase in the expected amount of soy- bean crush and stronger U.S. exports to make up for the South American shortfalls. On the world level, soybean ending


ing for a time to get in again when they feel it’s getting close to the bottom and, unfortunately, we just don’t know when that is.” In related news on the other side of


the world, New Zealand Wool Services International Limited’s General Manager John Dawson reports that the unaccept- ably high New Zealand dollar, high cus- tomer stock levels and restricted demand are continuing to subdue wool prices there as well. The market in New Zealand is follow-


ing recent trends in other wool-produc- ing markets. Client confidence is at a low point as they wait for increased con- sumer demand, particularly from Europe and the United States.


stocks for 2011-12 are projected to decline to 55.52 million metric tons. The Argentina soybean crop estimate has been reduced by 257 million bushels from the November estimate and the Brazilian soybean crop has been reduced by 330 million bushels from the November estimate — again all due to the drought farmers in those nations worked through this growing season.


U.S. corn ending stocks for the 2011-


12 marketing year were unchanged from the March report. Pre-report estimates were for a reduction in stocks based on the March 30 grain stocks report. Davis said that projected marketing year end- ing corn stocks of 801 million bushels is a 6.3% stocks-to-use ratio, or roughly a 23-day supply of corn available at the end of August. Also related to corn, the WASDE


report projects greater livestock feeding of wheat instead of corn, which will reduce the amount of corn used for that purpose. In addition, the 2012 corn crop is being planted earlier this year, so there is greater potential of the new-crop corn being harvested in southern states that could be fed in August. Davis said that “would provide some cushion for the tight 2011-12 corn balance sheet.” At the world level, corn ending


stocks for the 2011-12 marketing year will be the tightest since the 2006-07 marketing year with a stocks-to-use ratio of 14.2%, which was the tightest ending corn inventory in recent history, according to Davis.


Tight corn supply pushing wheat for feed The 2011-2012 marketing year will


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end May 31, a point at which most ana- lysts expect the U.S. Department of Agriculture (USDA) to make only minor changes to its year-end supply and demand estimates. USDA did make mostly small changes to wheat produc- tion, world trade and beginning stocks estimates in its monthly World Agricultural Supply and Demand Estimates (WASDE) report released April 10. However, USDA sharply increased projections of wheat used for feed. Generally, a spike in feed use would indicate quality issues, but other market factors are driving the feed wheat use higher than ever this year. Driving feed wheat demand is the


very tight supply of corn. Despite five consecutive years of record corn produc- tion, projected 2011/12 world ending stocks are 2% lower than last year and 7% lower than the five-year average. USDA currently projects U.S. ending corn stocks down 29% in 2011/12 to 20.3 million met- ric tons (MMT), 46% below the five-year average of 37.8 MMT. Historically, about 70% of total


world corn consumption is utilized as feed. However, the increase in total demand for corn, including biofuels, limits the amount available this year for feed. The lower supply of corn for feed and relatively high corn prices has driven livestock owners to look to alternative feed grains. The April WASDE indicated that


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USDA expects wheat will meet a large portion of the unmet feed demand. USDA increased projected world feed wheat use by 7 MMT in April to a record 138 MMT, 5% greater than the previous record set in 1990/91 and 22% greater than the five-year average. Tight corn supplies in China, the world’s largest feed grains consumer, have led to the current estimate of 19.5


MMT in feed wheat use this year, near- ly doubling the previous record. USDA also increased projected U.S.


feed wheat use by 950,000 MT to 4.90 MMT, 37% above the five-year average. Kim Anderson, agricultural economist at Oklahoma State University, attributed the increase to the tight U.S. corn stocks. Anderson noted that the United States has plenty of wheat available for all uses, but demand dynamics may pull more of this high quality wheat into the feed market. Looking at the futures market, the


spread between wheat and corn has tight- ened significantly the last few years. Historically, the three major wheat futures markets have held a premium to the Chicago Board of Trade (CBOT) corn price. However, on multiple days in the last year the CBOT soft red winter (SRW) futures contract closed at a discount to CBOT corn. For example, the CBOT corn contract closed 8 cents higher than the CBOT May SRW contract on Wed. April 11. Analysts also are watching the spread between CBOT corn and Kansas City Board of Trade’s (KCBT) hard red winter (HRW) contract. To date, KCBT has never closed lower than CBOT corn, but KCBT closed Wednesday with an 8-cent premi- um to CBOT corn and the spread April has been as low in as 4 cents. The tighten- ing of the price spreads makes wheat a more viable option for feed use. Even though USDA lowered project-


ed world wheat ending stocks in April by 3.3 MMT to 206 MMT, it will be the fourth largest carryover supply on record and 25% greater than the five- year average, if realized. In the United States, estimated ending stocks would decrease 870,000 MT, an 8% decline from last year, but still 22% above the five- year average. The United States contin- ues to have an abundant supply of wheat available at competitive prices to meet the world’s demands.


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