2008 Grain Outlook

By Sarah Watson, Livestock Editor
Thursday, December 27, 2007 11:35 AM CST

Demand for U.S. corn continues to be extremely robust, soybean prices have surged, and ending stocks of both those commodities could be at their lowest this marketing year said University of Illinois economist at the 2007 Farm Economic Summit held in Sycamore Dec. 13.

Corn demand strong

“Right now we are at the upper price end of where we’ve been in the last 35 years,” said Darrel Good. “Will the factors driving the corn price stay around?”

The ethanol boom has fueled the spike in corn prices. The USDA estimates that 2.1 billion bushels of corn is used for ethanol production the past marketing year which ended in September.

“That was a sizable increase over the last few years,” he said.

The corn for ethanol use projection for the current marketing year is 3.2 billion bushels, about a 50 percent increase in one year.

“As we move forward, there is some debate about how fast this will continue to go up,” he said. “But for at least the next two to three years there’s pretty strong evidence this number will continue pretty aggressively.”

New plants will continue to come online and bring more capacity and need for corn. The Energy Bill contains literature and mandates that will increase the Renewable Fuels Standard.

“We’re talking another billion bushels of corn that will be used with in the next two years on ethanol alone,” he said.

Also feeding the demand is record hog production, expanding broiler production, and rapid placement of cattle into feedlots. The competition between these industries will keep prices strong for the year to come.

Corn continues to see strong exports annually and with a weak dollar, corn exports are becoming increasingly popular.

“We’re about a quarter of the way through our marketing year and the USDA keeps raising its forecast on how much corn were going to ship,” he said.

The most current prediction of 2.45 billion bushels would knock out a 30 year old export record.

What do exports look like the next few years?

“I think the big supporting factor for U.S. corn exports will be reduced Chinese exports of corn, he explained. “Those exports have been coming down significantly the last three or for years.”

Food prices and inflation have become a major problem in China and the Chinese are doing everything they can to increase supplies of food to keep prices under control.

“They’re releasing inventories into the market place, they’re reducing import tariffs,” he said.

The aggressive buying and reduction of import tariffs is setting up China for imports.

“China will not be exporting any corn,” he said. “And in a best case scenario we will see them come back in as an importer of corn.”

In the midst of high prices, South America will probably ramp up corn production, Good said.

For the next two to three years U.S. corn export numbers will remain high.

The futures market predicts a price close to $4 for the next three years, while long term forecasters suggest a price closer to $3.25. Good sees an average between $3.50 and $3.75.

“Price outlooks look fairly strong,” he predicted.

Soybeans at all-time high

“The thing that is down in the market is the surplus of soybeans that we built last year n that huge crop in 2006 n is completely depleted this year,” he said.

The much smaller 2007 crop and continued demand is responsible for the diminishing stocks.

“It’s a bare cupboard on soybeans going into the 2008 harvest,” he said. “Somebody has to produce more soybeans if we’re going to continue to use soybeans at the current rate.”

The demand of soybeans is dominated by China and has exploded within the last 10 years. Good said one out of every two bushels of soybeans goes to China.

“They are the biggest importer of soybeans now,” he said. “That demand seems set to remain very, very strong.”

Biodiesel production is also driving demand for soybeans including 20 percent of all the soybean oil consumed in the domestic market.

Soybean meal prices have started strengthening along with the corn prices.

“Soybean meal now is carrying the soybean prices,” he said.

South America plays a major role in the 2008 harvest, but they have responded with only moderate expansion.

“In the projections of the 2008 harvest, South America really has just a modest increase of what they harvested last year,” he explained. “Longer term, I think that has to increase more rapidly.”

Dry weather in Argentina and a strong La Nina weather pattern will influence the yields in 2008.

“I think this is really supportive for soybean acres,” he said.

Some forecasters say the soybean acreage really needs to increase, and the U.S. reaction will depend on South America’s crop. Good suggested an increase of four to six million more acres of soybeans are needed to keep consumption at current levels.

Prices are likely to remain volatile with average prices above $9.

Shortfall in wheat

Shortfalls of wheat production due to acreage decreases and weather across the world have left the wheat stocks in small supply the last two years.

“All time highs in wheat prices are being driven by a world shortfall in wheat production for the last two years,” he said.

With two poor years, the world is burning through supplies quickly. The U.S. is going to be out of wheat in this marketing year. The shortage has created strong export demand for U.S. wheat.

“Hopefully it has stimulated some wheat entries around the world,” he said. “The race is on.”

Good yields will be needed not only in the United States, but around the world.

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