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Here Are Some Questions for a Long, Hot Summer in the Markets

June 30, 2008

By Alan Guebert;agcomm@sbcglobal.net

While Midwestern farmers and the U.S. Department of Agriculture have precise measurements on how much rain fell where in the deluge that socked 2008 planting, it will be months before anyone anywhere will know the final damage to property, production and prices.

Early guesses – a few official, many unofficial – however, are floating in.

Before the big floods ripped Iowa in half the week of June 8, USDA already had backed off its March 2008 corn and soybean production, usage and price projections.

In its June 10 World Agricultural Supply and Demand Estimate, USDA bean and corn counters sawed five bushels per acre yield off the 2008 corn guess. That sent 430 million bushels of 2008′s hoped for 12 billion bushels down the river.

Moreover, anyone who has driven to town in the past two weeks knows that slice won’t be the only yield cut of the year. Iowa Farm Bureau officials reckon 20 percent of the state’s corn and soybean crops were under water mid-June. Some, maybe much, of the acreage will get planted or replanted. The yield on all, however, will be substantially lower.

Next, USDA crop counters lopped 2008-2009 estimated feed usage by 1 billion bushels, dropping corn’s biggest domestic customer from 2007′s 6.15 billion bushels to 2008′s 5.15 billion bushels.

Can that massive, unprecedented de-acceleration of the U.S. pork, beef and poultry industries occur in the coming year? No one knows, but $7 – or higher – cash corn is plenty incentive for many meat producers to bailout before they flame out.

Curiously, however, in mid-June feeder cattle buyers continued to bid over a $1 per pound for tomorrow’s steaks, burgers and roasts despite feed’s – be it wheat, corn or whatever – crushing cost.

Golly, are the big-hat boys gambling on so many cattle feeders emptying their lots this summer that beef-on-the-hoof will become scarce enough and pricey enough this fall for the few who remain to cut a fat hog? Wow, good luck on that game of chicken.

The June 10 USDA report had an even more curious number than feed usage: Anticipated corn usage for ethanol production in the coming year was left unchanged, 4 billion bushels in the May report and 4 billion bushels in the June report.

Is the yet-young ethanol industry so much stronger than the ages- old livestock industry that it will continue to crank out fuel even as America’s food production drops and food prices soar? USDA thinks so; I think that’s an enormous leap of faith.

USDA did concede June 10 that 2008-2009 corn carryover will drop to a measly 673 million bushels, or just 47 percent of the 1.4 billion bushels we’ll bring into the new corn marketing year this fall. It also boosted the estimated average farm price for the coming crop to between $5.30 and $6.30 per bushel, twice the actual price of 2006-2007.

Neither big change is big news; both, though, are clear and early concessions to reality. And, too, each is a jumping off point for even deeper cuts in carryover and steeper climbs in estimated average prices as the growing season – two months down, less than three months to go – limps toward September.

Other important market questions can’t be answered for months. While USDA will issue an Acreage Report Monday and a Crop Production Report July 11, the biggie, the highly reliable, market-maker-or- breaker August Crop Report, won’t be forthcoming until Aug. 12.

Given the late planting, the awful May-June weather and the potential for corn pollination to be pushed into late July, it’s likely September combines, not the August report, will hold 2008′s best answers.

Alan Guebert is a syndicated columnist who writes weekly for The Pantagraph. He lives in Delavan. His e-mail address is agcomm@sbcglobal.net .

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