“Prospects for market year (MY) 2011/12 corn and soybean markets through the coming spring and summer months are supported by record-tight U.S. ending stocks-to-use for both crops for their respective 2010/11 marketing years, and the strong possibility that their ending stocks will remain extremely tight in the next marketing year as well (MY 2011/12),” says Dan O’Brien, Kansas State University Extension grain economist, in his most recent Grain Market Outlook.

“Prospects for U.S. wheat prices in MY 2011/12 are also good, based on likely shortfalls in the 2011 U.S. hard red winter wheat crop; the possibility of seeding problems due to wet field conditions for hard red spring wheat in the Dakotas, Minnesota and Canada; and cross-price support from corn and soybean markets. Given this set of grain-market conditions, any weather threat to U.S. or world crop production during the 2011 planting and growing season may very likely lead to record or near record high grain prices for farmers,” he says.

O’Brien goes on to explain, “…there are also risks that could lead to markedly lower grain prices later this year. First, with adequate moisture and improved weather conditions for crops in the U.S. Corn Belt, in South America, and in other major crop-producing regions of the world, it is possible that large world corn, soybean, and possibly even wheat crops, could be produced this year, leading to greater crop supplies and larger ending stocks in MY 2011/12 than most market analysts are currently expecting.

“Another risk to the current high grain-price situation is that extremely high grain prices could ration grain usage to the place that grain-using industries are ‘financially damaged,’ leading to a major retraction in grain usage and to lower grain prices. To date, for U.S. corn, there have been limited signs of this occurring in U.S. domestic ethanol and livestock-feeding industries, with mixed signals in corn-export markets.

“Third, there is some risk that U.S. grain markets would be affected should an economic slowdown occur in the U.S. sometime in 2011 – in a manner similar to how grain markets were negatively affected by the onslaught of a recession in the summer/fall months of 2008. An economic slowdown brought on by high energy prices or other inflationary pressures would likely put at least some downward pressure on grain market prices as investors would be expected to protect their financial resources by placing them in financial instruments and investments that they may consider to have less exposure to risk than grain futures markets.”

As the market tries to buy adequate acres for grain production, analysts with the Livestock Marketing Information Center (LMIC) point out hay supplies will likely be shorter.

“Cattle, dairy and sheep producers will face declining hay supplies in 2011-12 if hay acreage harvested this summer declines in line with farmer intentions,” say LMIC analysts. “Nationally farmers intend to harvest about 900,000 fewer hay acres than in 2010 (down 1.5%). If realized, that acreage will be the lowest since 1994.”

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