Feed & Grain takes a look back at 2007 and the massive corn crop’s impact on other feed grains. In Part One of this two-part series, we examine how the grain sorghum and wheat markets responded to the challenges and opportunities of last year and what they can look forward to in 2008.
By any measure, 2007 will likely be remembered as the year grain marketing changed forever.
Fueling the metamorphosis — both literally and figuratively — was a 90+ million acre corn crop which received its nearly 12 million acre boost over 2006, thanks in large part to a near frontier-days-style-land-grab demand for ethanol fuel stocks.
The resulting market volatility which ensued not only affected corn pricing with limit-busting price swings becoming an almost daily occurrence, but it is also changed the landscape for other grain markets significantly.
“Certainly in the case of wheat, corn’s impact was felt on several levels,” says Vince Peterson, vice president of Overseas Operations, U.S. Wheat Associates, Inc. “Some acreage was lost directly to corn but with substantially more acres of oilseeds planted in a few traditional wheat producing areas, such as the Northern Plains, wheat has been losing acres mainly to soybeans, canola and other crops.”
“All the while, these and other market events conspired to create a very peculiar marketplace reaction,” Peterson notes.
Creating the ‘perfect storm’
What Peterson refers to is a phenomenon that was unique to the wheat industry whereby the moment corn planted acreage figures looked to be reasonably final, it became a catalyst for the market to take on a price personality all its own.
In a four-and-a-half month span from June to mid-October, wheat prices skyrocketed. For example, September 2007 wheat futures settled at $8.40 in early September, nearly $1.00 above the previous record established in 1996, and as of this writing, prices were more than $1 over that mark.
Fundamental supply and demand was also fanning the flame of this red-hot marketplace with the revelation that the world was facing its second consecutive small wheat crop at a time when the United States was almost the only country with wheat to export. That has drawn down inventories to near-record low levels.
“Global wheat acreage had been on a steady decline over the last two decades and the world has consumed more wheat than it’s produced in nine of the last 15 years,” Peterson notes. “Increased average yields have helped keep pace with demand that is also changing.
“When a rapidly tightening supply meets steadily growing demand from more people with more money to spend on food, and at the same time wheat has to compete with corn, soybeans and other crops for acres, all the elements converge to create a wildly volatile marketplace with little regard to historical trending patterns or structure,” Peterson says.
Market madness mimicked in milo
While wheat was cutting its wide and wild swath through the marketplace, those who produce and market grain sorghum were experiencing a similar, if slightly less frantic ride of their own.
“While our pricing situation wasn’t as robust as wheat, we experienced a doubling of our commodity value from 2005 to today,” says Troy Skarke, a Texas grain sorghum producer, a director on the International Sorghum Markets Committee for the National Grain Sorghum Producers and a director on the U.S. Grains Council-Rest of the World (ROW) Markets. “The rapid growth of corn acreage and equally rapid disappearance of the 2007 crop from the trade arena had many buyers looking to grain sorghum to fill the void.”
According to USDA statistics, both production and acreage increased in 2007. Yield was forecast at 475 million bushels, up 71% from last year. Expected area for harvest as grain is forecast at 6.70 million acres, up 36% from 2006. Compared with last year, yield increases were expected in 10 of the 11 top producing states. In Kansas and Texas, the top two producing states, yields are expected to increase 16 bushels and 19 bushels from last year, respectively.