Recent developments regarding the U.S. spring wheat crop and ethanol production should support longer-term wheat and corn prices, but livestock disease problems might hurt oilseed prices.
A tour of northern American spring wheat regions found more fusarium head blight than last year, prompting tour participants to drop their yield outlook for the North Dakota crop to 35.5 bushels an acre, which was 8.5 percent less than in 2004.
The United States Department of Agriculture outlook for the spring wheat crop was 16.02 million tonnes, based on the same record yields of last year and an acreage increase of 3.5 percent.
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If the wheat tour’s assumptions about lower yield are representative of all the spring wheat area, then the crop might be closer to 14.5-15 million tonnes.
The USDA in early July forecast a total American winter and spring wheat crop of about 60 million tonnes and a 2005-06 carry out of about 19 million tonnes, up from 16.85 million in 2004-05. The spring crop’s disease problem might reduce that number a little.
Also good for wheat prices are the continuing heat and dryness in parts of the U.S. Midwest. It was a volatile week for Chicago corn futures with the price jumping and fall on each weather report. Most of Illinois has been declared a drought disaster area, eligible for low interest loans, and as of July 29, Missouri was also considering the move.
Most analysts believe the USDA will drop its forecasted corn production number in its Aug. 12 report. The July report called for a corn crop of 10.785 billion bushels.
This is supporting corn prices and anything that helps corn also helps wheat. Another factor supporting corn in the long term is ethanol production and it got a big boost in the U.S. last week.
The two houses of Congress agreed on an energy bill that among other things will double ethanol use to 28.4 billion litres by 2012. The agreement was a compromise between the House of Representatives’ desire for a 19 billion litre mandate and the Senate’s 30 billion litre proposal.
If all 28.4 billion litres of ethanol were made from corn, it would provide a market for about 2.6 billion bu., equal to about 25 percent of this year’s crop.
But the news wasn’t all good for grains and oilseeds.
A disease carried by hogs had killed 31 people and infected 152 in China’s Szechwan province by July 29.
The disease is caused by infection of Streptococcus suis bacteria, contracted from slaughtering, handling or eating infected pigs. Authorities were stepping up control measures at the end of last week.
Although it is not believed that the disease can be transmitted by human to human contact, it is another troubling outbreak of zoonotic (animal to human transmission) disease. If it causes many people in China to cut pork from their diet, it would be bad for hog production there, bad for soy meal demand and bad for soybean exports from the U.S.
The outbreak of SARS, Severe Acute Respiratory Syndrome, in China two years ago dropped pork consumption and resulted in reduced soybean imports. That weakened soybean prices, which also affected canola prices.
