“Have you ever seen a time like this, when U.S. farmers need to grow more of everything? What has caused this and will it last?”

These were excellent questions from a young farmer at one of my late-November seminars in western Minnesota.

No, was my honest and rather quick reply. In the 30 years I've been a grain broker and advisor, these have been the most dramatic demand-driven harvest rallies I've ever witnessed.

In this article I will try and answer all of his questions. The U.S. does need to grow more corn and soybeans over the next two years to provide adequate food, fuel and exports.

The supply-demand tables below show my projections for acreage, yields and carryout through the 2008 crop year. This analysis should answer the first two questions.

Our corn supply-demand projections suggest a 5.4 million-acre increase in corn acres in 2007 and an additional 3 million corn acres in 2008.

Using a 2% annual yield increase, that projects a national yield of 156 bu./acre by 2008. With that acreage and yield ending stocks fall to just 750 million bushels by 2008. This results in a stocks/use ratio of just 6%.

The commodity funds and end users who are aware of these numbers have been huge buyers of corn since late summer.

Now let's evaluate the soybean supply/demand table. My projections suggest a drop in soybean planted acreage next year of 3.2 million acres in 2007 and an additional drop in 2008 of 3 million acres of planted soybeans. Using a realistic 43 bu./acre national yield in 2007-08, U.S. ending soybean stocks fall to just 144 million bushels. This is just a 16-day supply.

This creates a very dangerous 4.5% stocks/use ratio. You can now see why the rally in corn is setting up very bullish soybean prices over the next two years.

Now for the last question — the easy one — will it last?

No, the corn and soybean rally that started in mid-September 2006 will likely put in a seasonal top between March and July of 2007 — with a long-term top in commodities likely by 2008.

Price works. We can anticipate more acres of corn and soybeans with farmers taking land out of hay and CRP in 2007-08.

Increased acreage and improving seed technology is a great combination for increasing corn and soybean production. Odds are good the U.S. will again face burdensome supplies within the next 3-5 years — but keep your seat belt fastened, it sure looks like some exciting times the next two years.

Alan Kluis is the president of Northland Commodities LLC, based in the Minneapolis Grain Exchange, Minneapolis, MN. You can contact him at [email protected] or call toll free 888-345-2855.