Grainnet

USDA Bullish on Wheat But Remains Bearish on Soybeans

Central City, NE -- Economists for the U.S. Department of Agriculture have become a bit more bearish on the cash soybean market lately, although farm gate wheat prices are now forecast to be even stronger than previously expected, due to an ongoing drought in the Great Plains.

The agency released new figures regarding the global supply/demand situation for grain early Wednesday, which warned that U.S. wheat and corn surpluses could shrink by 23% and 48%, respectively, over the coming year.

Burgeoning ethanol-fueled demand is behind the drawdown in corn carryouts, while weather problems continue to threaten U.S. wheat production.

"The U.S. hard red winter wheat crop has just been decimated by drought and now drought has moved up into the spring wheat (belt)," said Spectrum Commodities analyst Louise Gartner, who adds that - apart from a large Chinese harvest - unfavorable weather is also reducing wheat crop prospects in many other areas around the world as well.

"London feed wheat futures went to new contract highs ... because of heat in France, which they are afraid is going to lower production," she said.

"Argentina and Australia are experiencing dry conditions and they are already taking down planted acres. It is all over the place."

With global wheat surpluses now forecast to fall 10 million metric tons from last season, USDA analysts have now forecast a domestic season-average cash wheat price of exactly $4 per bushel, which is up 10 cents from last month.

Although government economists kept their estimate of grassroots corn prices even with last months projection of $2.45 a bushel, the U.S. season-average spot soybean price for 2006-07 is projected at just $5.00-6.00 a bushel, down 10 cents from June.

The agency notes that "forward pricing opportunities for new crop soybeans have remained at substantially lower price levels than in the 2 previous marketing years."

While forward contracting boosted cash prices paid to growers significantly in 2004-05 and in 2005-06, USDA said "with lower forward contract prices for the 2006 crop, season-average prices are expected to more closely reflect cash prices."

Wednesday's USDA report - which included forecasts for an 8% smaller, 465 million bushel U.S. spring wheat crop - is expected to perpetuate a broad market rally which has already pushed prices paid for high-protein wheat to 10-year tops, and put spot soybean markets at their highest level of the year.

Elevator bids for U.S. cash corn are also approaching a two-year peak as well.

But with futures drawing increased amounts of farm-stored grain into the supply pipeline, basis has weakened noticeably, led by an average retreat of 1/2 to 1 1/2 cents in domestic wheat premiums Wednesday.

CROP WEATHER

The Joint Ag Weather Facility of USDA/NWS said Wednesday morning showers in the Ohio Valley and eastern Great Lakes region Wednesday were "slowing winter wheat harvesting but maintaining favorable soil moisture for corn and soybean development.

Meanwhile, dry, warm weather is expanding across the northwestern Corn Belt, where summer crops are being increasingly stressed by heat and diminishing soil moisture reserves."

Drought is also affecting most of the Great Plains and Gulf Coast region as well.

"Soaking rains are still needed in many areas from Texas to Georgia and western Florida, to prevent additional stress on pastures and dryland summer crops," said agricultural meteorologist Brad Rippey.

JAWF forecasters said a slow-moving cold front will continue to trigger locally heavy showers and thunderstorms from the Ohio Valley eastward into the Mid-Atlantic and Northeast through Thursday.

"By week's end, rain will shift into the southeastern quarter of the nation, although pockets of dryness will persist in the eastern Gulf Coast region," said Rippey.

Meanwhile, increasingly hot conditions will expand across much of the U.S. lying west of the Mississippi River, with daytime high temperatures running 10-15 degrees Fahrenheit above normal in northern portions of the Plains and Corn Belt to the detriment of developing crops.