Grain Market Grain Market OutlookOutlook

Agricultural ExpositionAgricultural ExpositionGoodland, KansasGoodland, Kansas

February 21, 2008February 21, 2008

Daniel O’Brien & Mike WoolvertonDaniel O’Brien & Mike WoolvertonK-State Research and ExtensionK-State Research and Extension

dobrien@oznet.ksu.edudobrien@oznet.ksu.edu mikewool@agecon.ksu.edumikewool@agecon.ksu.edu

Historic vs Current Grain Historic vs Current Grain Prices Prices

2000-06 USDAAverage 2007/08

Wheat $3.35 $6.45 – $6.85

Corn $2.24 $3.75 – $4.25

Grain Sorghum $2.20 $3.65 – $4.15

Soybeans $5.66 $10.00 – $10.80

Sunflowers $11.57 /cwt $20.60 – $21.90

1 National marketing year average price per unit, 2000-2006.

WheatWheatMarketsMarkets

Current Wheat Market Current Wheat Market FactorsFactors

World wheat stocks at a 30 year low

Global shortage of quality milling wheat Strong support for U.S. Hard Red Spring Wheat prices

Weak U.S. dollar & Lower Ocean Freight Rates Helping U.S. wheat exports Wheat export regulations in Argentina & Russia Attracting speculative interest to U.S. commodity

markets

U.S. wheat acreage & production concerns in ’08 HRS vs soybeans in upper Great Plains; HRW

production

Need for greater 2008 U.S. / World wheat production in to rebuild stocks.

March 2008 HRW Wheat March 2008 HRW Wheat FuturesFutures

KCBT: April 2006-February 2008“2008 Old Crop March HRW Contract”

Contract Volume & Open Interest

Goodland, Kansas Goodland, Kansas Cash Wheat PricesCash Wheat Prices

Mueller Grain, Goodland, KansasApril 13, 2007 – Feb. 20, 2008Source: DTN Bid Analyzer

Basis: $0.62/bu underKC March 2008 Wheat

July 2008 HRW Wheat July 2008 HRW Wheat FuturesFutures

KCBT: April 2006-February 2008“2008 New Crop July HRW Contract”

Contract Volume & Open Interest

Goodland, Kansas Goodland, Kansas New Crop Wheat PricesNew Crop Wheat Prices

Frontier Ag Inc., Goodland, KansasFeb. 22, 2007 – Feb. 20, 2008Source: DTN Bid Analyzer

FC Basis: $0.75 /bu underJuly 2008 KC Wheat

March 2008 Hard Red March 2008 Hard Red Spring WheatSpring Wheat

KCBT: April 2006-February 2008“2008 Old Crop March HRW Contract”

Contract Volume & Open Interest

U.S. Wheat Supply-DemandU.S. Wheat Supply-Demand 2005/06 2006/07 2007/08 Planted Ac. (mln.) 57.2 57.3 60.4 Harvested Ac (mln.) 50.1 46.8 51.0 Yield (bu./ac.) 42.0 38.7 40.5 Beg. Stocks 540 571 456 Production 2,105 1,812 2,067

Total Supplies 2,727 2,505 2,613 Food 914 933 945 Seed 78 81 86 Exports 1,009 909 1,200 Feed & Residual 154 125 110

Total Use 2,155 2,049 2,341 End Stocks (%S/U) (26%) 571 (22%) 456 (12%) 272 U.S. Ave. Farm $ $3.42 $4.26 $6.45-$6.85

U.S. Wheat ProductionU.S. Wheat Production1973-2007 1973-2007 + Projected 2008+ Projected 2008

2.12.1

2.6

2.22.4

2.62.72.8

2.1

0.0

1.0

2.0

3.0

4.0

'73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07

Marketing Year

Bill

ion

Bus

hels

Projected increase in U.S. Wheat Production in 2008/09(More U.S. Wheat Acres x Trend Yields)

World Wheat Supply-DemandWorld Wheat Supply-Demand2005/06 thru 2007/08 Marketing Years2005/06 thru 2007/08 Marketing Years

621 624

116 148

593 616

111 125

604 619

106 110

0

200

400

600

800

Production Use Exports Ending Stocks

Mill

ion

Met

ric

Ton

s

'2005/ 06 Mktg Yr '2006/ 07 Mktg Yr '2007/ 08 Mktg Yr

"Some" Price Rationing of Wheat Export Purchases

30 year low for World Wheat Ending Stocks

(since 1977/78)

Exports of World Wheat Exports of World Wheat ExportersExporters

2005/06 thru 2007/08 Marketing Years2005/06 thru 2007/08 Marketing Years

0

5

10

15

20

25

30

35

Mill

ion

Met

ric

Ton

s

EU-27 U.S. Canada Australia Argentina FSU-12

'2005/ 06 Mktg Yr '2006/ 07 Mktg Yr '2007/ 08 Mktg Yr

U.S. & FSU 12 Only Major Exporters to increase Sales in 2007/08

U.S. Wheat Stocks/Use% vs U.S. Wheat Stocks/Use% vs PricePrice

$3.99$3.72

$4.50

$3.56

$3.42

$4.26

$6.65

0

20

40

60

80

100

120

'73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07

Marketing Year

% S

tock

s/U

se

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

U.S

. W

hea

t $

U.S. Wheat Ending Stocks to Use % U.S. Wheat Price

Record 2007/08 U.S. Wheat Price: $6.45 - $6.85 /bu @ 12% Stocks/Use

Soybean Soybean &&

Oilseed Oilseed MarketsMarkets

Current Oilseed Market Current Oilseed Market FactorsFactors

Brazilian soybean area up only 1% Recent South American rains helping soybean crop

High soymeal-soyoil prices & exports High soyoil prices damaging U.S. soydiesel

industry Weak U.S. dollar & lower ocean freight

rates helping soybean exports Attracting speculative interest to U.S.

commodity markets Critically low U.S. carryover

Only 19 days inventory on hand at end of 2007/08 Need for U.S. acreage & production

increase in 2008 to rebuild stocks

March 2008 Soybean March 2008 Soybean FuturesFutures

CBOT: October 2006-February 2008“2008 Old Crop Soybean Contract”

Contract Volume & Open Interest

Goodland, Kansas Cash Goodland, Kansas Cash Soybean $sSoybean $s

Frontier Ag Inc., Goodland, KansasFeb. 21, 2007 – Feb. 20, 2008Source: DTN Bid Analyzer

Basis: $1.54 ½ /bu under CBOT March 2008 Soybeans

Cash Sunflower PricesCash Sunflower Prices

Northern Sun - ADM., Goodland, KansasFeb. 22, 2007 – Feb. 20, 2008Source: DTN Bid Analyzer

November 2008 Soybean November 2008 Soybean FuturesFutures

CBOT: January 2006-February 2008“2008 Old Crop Soybean Contract”

Contract Volume & Open Interest

Goodland, KansasGoodland, KansasNew Crop Soybean PricesNew Crop Soybean Prices

Frontier Ag Inc., Goodland, KansasFeb. 21, 2007 – Feb. 20, 2008Source: DTN Bid Analyzer

FC Basis: $1.25 under CBOT NOV 2008 Soybeans

New Crop Sunflower New Crop Sunflower PricesPrices

Northern Sun - ADM., Goodland, KansasJune 7, 2007 – Feb. 20, 2008Source: DTN Bid Analyzer

U.S. Soybean Supply-U.S. Soybean Supply-DemandDemand

2005/06 2006/07 2007/08 Planted Ac. (mln.) 72.0 75.5 63.6 Harvested Ac (mln.) 71.3 74.6 62.8 Yield (bu./ac.) 43.0 42.7 41.2 Beg. Stocks 256 449 574 Production 3,063 3,188 2,585

Total Supplies 3,322 3,647 3,165 Crushings 1,739 1,806 1,835 Exports 940 1,118 1,005 Seed 93 78 86 Residual 101 70 79

Total Use 2,873 3,073 3,005 End Stocks (%S/U) (16%) 449 (19%) 574 (5%) 160 U.S. Ave. Farm $ $5.66 $6.43 $10.00-$10.80

U.S. Soybean Planted U.S. Soybean Planted AcreageAcreage

1973-2007 1973-2007 + Projected 2008+ Projected 2008

74.370.971.4 75.5

63.670.0

0

25

50

75

100

'73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09

Marketing Year

Mill

ion

Acr

es

Recovery in U.S. Soybean Acres Expected for 2008/09

U.S. Soybean ProductionU.S. Soybean Production1973-2007 1973-2007 + Projected 2008+ Projected 2008

2.62.9

3.23.12.92.7

2.5

2.12.22.3

1.81.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

'73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07

Marketing Year

Bill

ion

Bus

hels

Higher U.S. Soybean Production Expected for 2008/09

World Soybean Supply-World Soybean Supply-DemandDemand

2005/06 thru 2007/08 Marketing Years2005/06 thru 2007/08 Marketing Years

220 215

64 53

236 225

71 62

220236

7646

0

50

100

150

200

250

300

Production Use Exports Ending Stocks

Mill

ion

Met

ric

Ton

s

'2005/ 06 Mktg Yr '2006/ 07 Mktg Yr '2007/ 08 Mktg Yr

Decreasing World ProductionIncreasing Use & ExportsDeclining Ending Stocks

Exports of World Soybean Exports of World Soybean ExportersExporters

2005/06 thru 2007/08 Marketing Years2005/06 thru 2007/08 Marketing Years

0

10

20

30

40

U.S. Brazil Argentina

Mill

ion

Met

ric

Ton

s

'2005/ 06 Mktg Yr '2006/ 07 Mktg Yr '2007/ 08 Mktg Yr

Not as large an increase in Brazilian soybean production as expected has diminished Export prospects & pushed World Soybean $Prices higher

Record Prospects for Argentina Soy Exports

U.S. Soybean Stocks/Use% U.S. Soybean Stocks/Use% vs Pricevs Price

$6.64$6.81

$7.57 $7.83$7.42 $7.35

$10.40

$6.43

$7.34

0

5

10

15

20

25

30

35

'73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07

Marketing Year

% S

tock

s/U

se

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

U.S

. S

oyb

ean

$

Stocks/Use% U.S. Soybean Price

Record High U.S. Soybean Price: $10.00 - $10.80 /bu

Feedgrain Feedgrain

Markets:Markets:Corn & Corn & Grain Grain

SorghumSorghum

Current Feedgrain Market Factors

U.S. Feedgrain stocks are adequate Feedgrain supplies not as tight as for wheat & soybeans Large 2008 crop (12.5–13.0 billion bu) needed to meet

demand

U.S. Ethanol demand continues strong Strong demand from overseas export buyers

Reduced production in Argentina (dry Dec-Jan) & Mexico (lower area than expected), increases in South Africa (good rains)

South hemisphere corn export competition to increase seasonally.

Expected competition for U.S. crop acres vs other crops in Spring 2008 (“bidding” occurring Feb-April)

March 2008 Corn FuturesMarch 2008 Corn Futures

CBOT: February 2006-February 2008“2008 Old Crop Corn Contract”

Contract Volume & Open Interest

Goodland, Kansas Goodland, Kansas Corn Cash PricesCorn Cash Prices

Mueller Grain, Goodland, KansasApril 13, 2007 – Feb. 20, 2008Source: DTN Bid Analyzer

Basis: $0.32 1/2 /bu underCBOT March 2008 Corn

Goodland, KansasGoodland, KansasCash Grain Sorghum PriceCash Grain Sorghum Price

Frontier Ag Inc., Goodland, KansasFeb. 23, 2007 – Feb. 20, 2008Source: DTN Bid Analyzer

Basis: $0.57/bu underCBOT March 2008 Corn

December 2008 Corn December 2008 Corn FuturesFutures

CBOT: Jan 2006-February 2008“2008 New Crop Corn Contract”

Contract Volume & Open Interest

Goodland, KansasGoodland, KansasNew Crop Corn PricesNew Crop Corn Prices

Mueller Grain, Goodland, KansasApril 19, 2007 – Feb. 20, 2008Source: DTN Bid Analyzer

FC Basis: $0.30 /bu underCBOT December 2008 Corn

Goodland, KansasGoodland, KansasNew Crop Grain Sorghum New Crop Grain Sorghum

PricesPricesFrontier Ag Inc., Goodland, KansasFeb. 22, 2007 – Feb. 20, 2008Source: DTN Bid Analyzer

FC Basis: $0.53/bu underCBOT December 2008 Corn

U.S. Corn Supply-DemandU.S. Corn Supply-Demand 2005/06 2006/07 2007/08 Planted Ac. (mln.) 81.8 78.3 93.6 Harvested Ac (mln.) 75.1 70.6 86.5 Yield (bu./ac.) 148.0 149.1 151.1 Beg. Stocks 2,114 1,967 1,304 Production 11,114 10,535 13,074

Total Supplies 13,237 12,514 14,393 Ethanol 1,603 2,117 3,200 Other Food, Seed, Indust. 1,378 1,371 1,355 Exports 2,134 2,125 2,450 Feed & Residual 6,155 5,598 5,950

Total Use 11,270 11,210 12,955 End Stocks (%S/U) (17%) 1,967 (12%) 1,304 (11%) 1,438 U.S. Ave. Farm $ $2.00 $3.04 $3.75-$4.25

U.S. Grain Sorghum Supply-U.S. Grain Sorghum Supply-DemandDemand

2005/06 2006/07 2007/08 Planted Ac. (mln.) 6.5 6.5 7.7 Harvested Ac (mln.) 5.7 4.9 6.8 Yield (bu./ac.) 68.5 56.2 74.2 Beg. Stocks 57 66 32 Production 393 278 505

Total Supplies 450 343 537 Food, Seed, Indust. 50 45 35 Exports 194 157 285 Feed & Residual 140 109 175

Total Use 384 311 495 End Stocks (%S/U) (17%) 66 (10%) 32 (9%) 42 U.S. Ave. Farm $ $1.86 $3.29 $3.65-$4.15

U.S. Corn Planted AcreageU.S. Corn Planted Acreage1973-2007 1973-2007 + Projected 2008+ Projected 2008

88.0

93.6

50.0

60.0

70.0

80.0

90.0

100.0

'73 '75'77 '79 '81'83 '85 '87'89 '91'93'95 '97 '99 '01'03 '05'07 '09

Marketing Year

Million

Acr

es

U.S. Corn ProductionU.S. Corn Production1973-2007 1973-2007 + Projected 2008+ Projected 2008

9.5

7.9 8.28.9

9.910.1

11.8 12.513.1

0.0

3.0

6.0

9.0

12.0

15.0

'73 '75 '77 '79 '81'83 '85 '87 '89 '91'93 '95 '97 '99 '01'03 '05 '07

Marketing Year

Bill

ion

Bus

hels

Record 2007 Corn ProductionProjected Decrease in 2008

U.S. Ethanol Industry at a U.S. Ethanol Industry at a GlanceGlance

2006 2008 Number of operating ethanol plants: 97

139 Under construction or expanding: 35 69

Announced plants: 300(17%) 100(?)

Current production capacity: (BGPY) 4.8 7.9 Projected production capacity: 11.7 BGPY end of

2008 13.5 BGPY end of 2009

Feedstock Use Proportion:Corn 97%Sorghum 2%Other 1%

U.S. Corn ExportsU.S. Corn Exports1973/74 thru 2007/08 Marketing Years1973/74 thru 2007/08 Marketing Years

2.152.232.372.40 2.45

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

'73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07

Marketing Year

Billion

Bush

els

325 Million Bu Increase (15%) in 2007/08 over 2006/07 ?

Exports of World Coarse Grain Exports of World Coarse Grain ExportersExporters

2005/06 thru 2007/08 Marketing Years2005/06 thru 2007/08 Marketing Years

0

10

20

30

40

50

60

70

80

U.S. Argentina Australia Canada Brazil China FSU-12

Mill

ion

Met

ric

Ton

s

'2005/ 06 Mktg Yr '2006/ 07 Mktg Yr '2007/ 08 Mktg Yr

U.S. is the only major Supplier with marked increase in Exports in 2007/08 Mktg Year

Limited prospects for other Coarse Grain Exporters

4.37 mmt LESSChina CoarseGrain Exports

1.15 mmt MORE Canada Coarse

Grain Exports

U.S. Corn Stocks/Use% vs U.S. Corn Stocks/Use% vs PricePrice

$3.02

$3.12$3.21

$3.24

$2.42

$2.00

$3.04

$4.00

0

10

20

30

40

50

60

70

'73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07

Marketing Year

% S

tock

s/U

se

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

U.S

. C

orn

$

Stocks/Use% U.S. Corn Price

2007/08 Record High: $3.75 - $4.25 / bu

@ 11% Stocks/Use

Long Run Long Run

Grain Grain MarketMarket

PerspectiPerspectivesves

Land in CropsLand in Crops (Millions of acres)(Millions of acres)

55 yr. Ave.yr. Ave. 07/08USDA07/08USDA Proj. 08/09Proj. 08/09

CornCorn 79.6 79.6 93.6 93.6 88.0 88.0 (-6%)(-6%) SoybeansSoybeans 74.2 74.2 63.6 63.6 70.0 70.0 (+10%)(+10%)

HayHay 62.4 62.4 61.8 61.8 61.8 61.8 (--)(--)

WheatWheat 59.5 59.5 60.4 60.4 62.2 62.2 (+3%)(+3%)

CottonCotton 14.1 14.1 10.8 10.8 10.0 10.0 (-7%)(-7%)

Grain Sorghum 8.1 Grain Sorghum 8.1 7.7 7.7 7.4 7.4 (-(-4%)4%)

Principle Crops Principle Crops 297.9 297.9 297.9 297.9 299.4299.4CRPCRP 35.9 35.9 34.9 34.9 (-3%)(-3%)

Total crop land in the United States – 441.6 million acresTotal crop land in the United States – 441.6 million acres

Crop Acres Coming Out of Crop Acres Coming Out of CRPCRP

2007–2017 (2007–2017 (Source: USDA, FSA)Source: USDA, FSA)

1.0

0.5

0.9 1.0

1.4 1.3

1.1

0.90.8 0.8

0.4

0.00

0.25

0.50

0.75

1.00

1.25

1.50

1.7520

07

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Mil

lio

n A

cres

Long Run Grain Prices Long Run Grain Prices 2000-06 USDA Long RunAverage 2007/08 Projection

Wheat $3.35 $6.45 – $6.85 $5.00

Corn $2.24 $3.70 – $4.30

$3.50

Grain Sorghum $2.20 $3.60 – $4.20 $3.40

Soybeans $5.66 $9.90 – $10.90 $7.50

Sunflowers $11.57 $19.60 – $21.20 $15.50

1 National marketing year average price per unit, 2000-2006.

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