World Grain - March 2006 - 6

from the editor-in-chief

Weighing concerns about
growing conditions for '06

ven though it's foolhardy to anticipate so
early in the Northern Hemisphere growing season how grain production will
turn out this summer, the temptation is to observe that concerns about production in 2006
are intensifying, even as definite information
is lacking. Unusual cold in northern Europe,
extending well into the Russian Federation's
main wheat areas, extreme dryness in the
southern Plains in the U.S., lack of moisture
in some major Southern Hemisphere growing
areas and erratic conditions in other regions
are often cited as reasons to worry about the
crop. Conversely, there are reports of excellent moisture in the eastern U.S. as well as in
areas of Europe not impacted by sub-freezing
temperatures, and better than normal conditions in North Africa and China. Considering
how global demand is often driven by conditions in the latter two areas, satisfaction with
this outlook provides an important offset to
poor conditions elsewhere.
In the case of wheat, the grain-based foods
industry in America appears to be anticipating a reduction in hard red winter wheat
production this summer. This is mainly due
to dryness in Texas and Oklahoma that is
described as the worst in three decades. In
contrast, eastern U.S. soft wheat production,
which has the major influence on Chicago
futures prices, looks set to score gains. Not
only has weather favored this difference in

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the two winter wheat classes, but actual seedings last fall meant gains in soft wheat area
in contrast to decreases for hard red winter
in the southern Plains where soil was unusually dry. Hardly anything signals this change
more forcefully than the way the margin of
Kansas City hard wheat futures has widened
over Chicago.
With maize and soybean plantings still
some time away, it's much too early to project prospects. Yet, it should be noted that if
weather patterns have turned especially erratic, these spring-seeded crops are highly vulnerable during their relatively short growing
seasons. Farmers in many traditional wheatgrowing areas in the Plains have been drawn
to planting varieties of corn and soybeans
adapted to production in areas of reduced
rainfall. Returns from normal yields of these
crops make them more attractive to American
farmers. This shift is facilitated by government programs that no longer relate payments
to specific crops, but reward farmers for seeding almost anything, except fruit.
Even though the current prospect for global demand for wheat and other grains in 200607 does not indicate any surprises, either up
or down, increasing attention is being paid
to rising output of ethanol as a fuel and its
expanding draw on the grain supply. Ethanol
is made mainly from corn in America, but
wheat is used in Europe and in other areas.

Already absorbing more than 10% of the U.S.
corn supply, the rapid expansion of ethanolmaking capacity raises the likelihood that this
demand, rivaling exports in size, will assume
greater importance. This expectation is reinforced by high oil prices, which intensify the
search for alternative fuels, where ethanol has
high priority. Concerns on this score are also
affected by the way Brazil's reliance on sugar
cane as the raw material for making ethanol
has not only raised sugar prices in that country but in many other parts of the world.
Hardly anything diminishes the bullish
case for grain, based on either unfavorable
weather or expanding ethanol-related demand, more sharply than the size of recent
crops in the U.S.. Producing an astounding
10 billion to 11-plus billion bushels for three
years in a row not only reflects good overall
growing conditions, but also the benefits derived from raising yields as the result of advances in production and seed research. Thus
far in the 21st century, average yield of wheat
has hardly changed, while both corn and soybeans have posted significant increases. It is
obvious that this combination of expanding
yields and fuel-related demand favor rising
corn production in a way that earns the full
attention of international markets.

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WORLD GRAIN (ISSN 0745-8991), volume 24, issue 3,

Morton I. Sosland

Editor-in-Chief

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World Grain - March 2006

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