Extension Communications |
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6/19/03 FOR IMMEDIATE RELEASE Contacts: World Grain Stocks: Are They as Tight as in 1996? For agriculture, a highlight of 1996 was the all-time record high corn and wheat futures prices of over $5 and $7 per bushel, respectively, in the spring and early summer. The high prices were triggered by crop problems in the U.S. and several other countries including China, according to Robert Wisner, economist, Iowa State University Extension. "Crop problems over a large area in 1995 reduced U.S. and global grain carryover stocks to the lowest percentage of annual use in recent memory," he said. Grain carryover stocks, when expressed as a percent of annual use, are a measure of reserve supplies available to offset unexpected global grain production problems. USDA's projections issued June 11, indicated global wheat and coarse grain (feed grain) stocks by the end of summer next year may be the lowest percent of annual world use since 1973-74. While that looks extremely positive for grain prices, Wisner said several cautions should be observed when drawing conclusions about potential market impacts. Wisner points out that estimates of global grain stocks for many years in the past have been revised sharply upward. This happened twice in the last two years by USDA and other organizations monitoring global grain supplies. The upward revisions reflect huge increases in estimated Chinese grain carryover stocks. "Just the increase in estimated Chinese stocks from the first of these revisions was more, much more than the entire U.S. wheat carryover stocks. The increase from upward revisions in Chinese feed grain stocks was slightly more than the entire U.S. corn carryover stocks," he said. "These revisions now make global grain stocks data for 1996 look considerably less tight than they did at the time of $5 corn and $7 wheat futures prices," he said "Also, the 1995-96 experience showed the world grain trade that it could operate on considerably lower stocks than previously thought." Even with recent large upward revisions in world stocks estimates, Wisner noted that global stocks do not offer a large reserve against possible 2003 weather problems. He said a widespread U.S. Corn Belt drought, if that were to occur, could bring explosive corn and soybean prices. But as of mid-June, crop conditions looked considerably better than a year ago around the Midwest and sub-soil moisture appeared generally good. Another unknown in production prospects is the number of acres planted to corn and soybeans this year. USDA will release estimates of planted acreage on June 30. For those concerned about a possible sharp rise in prices, Wisner said that call options purchases provide opportunities to retain upward price flexibility into summer after selling old or new-crop grain. At-the-money September corn call options on June 17, 2003 could be purchased for 13 cents per bushel plus a small amount for the brokerage fee. Call options a dime out of the money could have been purchased for about nine cents. The economist said that with options purchases, the maximum financial exposure is known up front and is just the initial purchase cost. If prices rise sharply, the calls would increase in value. He added that in the world picture, crop problems in former Soviet republics are expected to be partially offset by sharp increases in wheat production in Canada and Australia, two of the world's leading exporters. Canadian wheat production in 2002, because of two consecutive years of drought, was down 40 percent from two years earlier. Australia's crop was reduced 57 percent from the previous year by drought. Mid-June production reports from Canada and Australia were projected to be up 53 percent and 142 percent, respectively, from last year. -30- ml: isufarm |
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