With no changes in U.S. outputs and limited changes in world crop levels at this time of year, the U.S. Department of Agriculture's (USDA) monthly supply/demand updates in February normally don't have many adjustments. However, ongoing strong overseas interest in U.S. grains and soybeans could prompt upward revisions in this year's corn, soybean and wheat export forecast-which could tighten the USDA's 2007/08 ending stocks on Friday. 

In corn, the last three weeks of foreign purchases (totaling more than 225 million bu.) have pushed this year's corn sales to 1.824 billion bushels-455 million larger than last year, and the highest level of sales for late January since 1995/'96. With this year's foreign purchases (at 447 million bu. above corn's normal seasonal sales pace) set to reach the USDA's current 2.45 billion export forecast, this demand projection could be increased 75-100 million bu. Friday. Corn's domestic usage levels for feed and ethanol, however, probably won't be adjusted this month-since the next quarterly grain stocks report isn't available until March 31.

After a lull during the holidays, soybean exports also have picked up during the first month of 2008, totaling 78 million bu. This keeps overseas demand 6 million ahead of last year and 69 million ahead of the seasonal pace, to achieve the USDA's current export forecast of 995 million. These comparisons don‘t sound too dynamic, but this year's U.S. soybean ending stocks of 175 million bu. aren't large enough for exports to total 1.12 billion (the current yearly pace at this time). With only 148 million bu. of foreign purchases to achieve the USDA's current export forecast (the second-lowest level for this date with 31 weeks left in the crop year except for 2003/04), this year's export demand could be raised 15 million to 20 million bu.-but this crop doesn't have any excess supplies to spare this year. So far, the U.S. crushing level seems on pace to hit the USDA's processing level of 1.83 billion bu.

With foreign wheat sales increasing 49 million bu. in the last three weeks to 1.13 billion bu., only 45 million bu. in further sales need to occur in the remaining 18 weeks of the crop year to achieve the USDA's current 1.175 billion forecast-which also includes 25 million bu. of flour equivalent.  Because of this year's tight world supplies and the perceived need to attract more U.S. spring wheat seedings, Minneapolis wheat values have exploded $4 higher as buyers scrambled to security high protein wheat. With U.S. hard spring wheat export sales at 282 million bu. vs. the USDA's current estimate of 275 million for this variety-along with soft red, white and durum nearly at their forecasts-the possibility of the USDA increasing its 2007/08 exports by 25 million bu. to 1.2 billion on Friday's report seems strong.

If wheat's old-crop supplies do decline to 267 million bu. on Friday, this stocks level will be 70 million below that of 1973/'74 and the tightest stocks/use ratio, since the 1940s at 11.4%. This situation also keeps nearby price potential open to the $11 to $12 range for Chicago and KC contracts, if India's crop falters without late-season rains over the next 6-8 weeks. However, expanding seedings in Europe, Former Soviet Union, Canada and China of 6%-10% will limit new-crop price potential this spring and pressure values this summer, if 2008/'09 world output rebounds 30 mmt to 40 mmt as it has in the past. Hold 2008/'09 sales at 50%-60%, with July values still open for harvest pressure to the $6.50-$7 range.

If soybean exports are raised to 1.01 billion bu. on the upcoming U.S. supply/demand update, this year's ending stocks will drop to 160 million bu., the lowest carryover amount since the 2003/'04 crop year-and this will result in a 5.3% ending stocks-to-total-use ratio. This level of tightness isn't at the minimum pipeline ratio of 4.4% (135-138 million bu. this year) in 2003/'04, but any less carryover will mean the need for even higher soybean seedings this coming spring. To have a minimum adequate supply near 200 million bu. for the 2008/'09 season, it now appears new crop plantings need to rise to 71 million acres, but this planting isn't assured with wheat, corn and cotton needing acres too. With rains delaying Mato Grasso's harvest in Brazil, hold sales with old-crop potential to the $13.75-$14 range and new-crop to the $13.40-$13.70 area before adding another 5%-10% sale to your marketing.

Increasing exports by 100 million bu. doesn't impact corn's supply much, but it does mean that to have minimal adequate supplies, 2008/'09 seedings will need to be near 89.5 acres, only a 4 million acre decline from this year's record level. We are also cautious that this year's feed and ethanol demand each will be shaved by 100 million bu. or more, because of the current high prices reducing demand. However, these changes won't become evident until the next quarterly stocks report on March 31. Hold sales for now, but be prepared to increase them 10% on strength to $5.50-$6 basis March, and $5.75-$6.25 basis December.

Disclaimer - The information contained in this report reflects the opinion of NARMSinc and should not be interpreted in any way to represent the thoughts of RJ O'Brien, any of its affiliates, nor any of its employees. Futures and commodities trading involve significant risk and may not be suitable for every investor. Information contained herein is strictly the opinion of its author and is intended for informational purposes and is not to be construed as an offer to sell or a solicitation to buy or trade in any commodity or security mentioned herein. Information is obtained from sources believed reliable, but is in no way guaranteed. Opinions, market data and recommendations are subject to change at any time. Past results are not indicative of future results. Charts are developed by NARMS from USDA, other public data and proprietary models unless otherwise noted and credited.