Tri-State Neighbor: South Dakota Farm Newspaper

The Chicago Board of Trade and the Dow Jones-AIG Commodity Index hosted a mid-year commodity outlook recently, featuring leading commodity market experts in the areas of agriculture, energy, metals and commodity trading. Of the commodities discussed, grains, combined with soybean oil, carried the second largest weight on the Dow Jones-AIG Commodity Index at 20.7 percent, on the heels of petroleum at 22.6 percent.

Dan Basse, president of AgResource, offered the agricultural outlook on the program. Basse cites weather factors and export market share as contributors to the recent bullish trend in the agricultural commodity markets.

"The key question that I would pose is, we've all enjoyed a rather robust period in the agricultural trade over the past six to nine months," said Basse. "The million dollar question as we move forward is, 'will it continue?'

"As we look back over 2002, how did we get to five-year price highs in soybeans? How did we get to the best spring price levels in corn and wheat since 1997? I think if we look in our rearview mirror, the best answer is that we had a drought year last year in the United States, we had a drought in Canada and Australia and a monsoon failure in India. All of these events kind of ganged up on supply, if you will, to get us to where we are today," said Basse.

Where we are today includes soybean prices reaching the highest levels in five years at $6.58 a bushel and a 50 percent retracement of the market going to a bear market that started back in 1996 and just recently finished, according to Basse. Another contributor to the rally can be found in China.

"We saw the Chinese step forward and they were significant, record large importers of soybeans in the year that's going to end 2002-03," said Basse. "... Somewhere between 16.5 and 18 million metric tons of beans, up anywhere between 6 and 7.5 million metric tons from the year before. That has given us the vitality."

Despite that vitality, the market still depends on locust plagues, drought or something else to sustain high prices, said Basse.

The United States' market share of world trade for corn, wheat and soybeans continues to decline. As other countries such as Brazil, Argentina, Ukraine and Russia expand their crop production and up their export power, the United States is competing for market share. In the mid-1980s, 86 percent of the world's export trade was provided by the United States; today it's down to 36 percent. Likewise, in the mid-80s, 79 percent of the world's corn was exported by the United States, today it's 62 percent; wheat was 42 percent versus 23 percent today.

"Exports drive price," said Basse. "It is the biggest contributor to bullish prices of demand, so when we look at these kind of declines, it's somewhat worrisome."

This past year, the European FSU and the Ukraine exported almost more grain than the United States.

"They will be facing drought and winter kill problems this year, which will reduce their exports to probably something in the vicinity of 6 to 8 million metric tons, but this area of the world is an up-and-comer," said Basse.

South America is another up-and-comer, which has rapidly expanded its soybean production 8 to 12 percent per year since 1996. AgResource predicts a record large South American soybean crop at 3.6 billion bushels, surpassing the expected 2.9 billion bushels in the United States.

And China continues to be a significant exporter of corn, according to Basse.

"There's no indication that they're backing off," said Basse. "If you want to be bullish in the grain market, the one caveat would be China's compliance with WTO and their lowering of corn export subsidies, but it's going to be a long time before China imports corn; they still have to approve 14 GMO varieties for import. We imagine it will be at least 18 to 24 months before China becomes any kind of net importer."

All that considered, AgResource predicts harvest lows in the vicinity of $1.95 to $2.05 per bushel; soybeans down in the vicinity of $4.50; and wheat within the next two weeks will hit a harvest low of between $2.90 and $3, according to Basse.

"Now all of this is predicated on normal weather," said Basse. "Of course a summer drought - something in July or August - could change all of this, but I really believe that you do need to see that drought or extreme heat before we can talk about a big upward surge of grain values."

Comments »

Comment on this story

Comments will be approved within 48 hours