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"Producers are now faced with a
different set of decisions," said Darrel Good. "The cash price is
above the loan rate, and the market is offering little to store the
crop. Since no other sector will store the crop under the current
price structure, near-term prices will be influenced by the rate at
which producers sell the crop."
Good's comments came as he
reviewed recent actions in the corn market. In recent weeks, the
soybean market has received the most attention, due to the small
U.S. crop and rising prices. Last week, however, corn prices moved
sharply higher after some weakness early in the week.
"The timing of the price
increase is a bit of a surprise," said Good.
On Monday and Tuesday of last
week, December 2003 corn futures traded to a low of $2.1325, only
$0.0375 above the contract low established in July. That contract
traded to a high of $2.385 on Oct. 23, settled at $2.35 on Oct. 24
and traded to above $2.42 on Oct. 27.
"The higher prices were also
accompanied by a stronger interior basis and a narrowing of spreads
in the futures market," said Good. "The December 2003 to March 2004
spread narrowed from just over 8 cents in early October to under 6
cents late last week. The December 2003 to July 2004 spread narrowed
from nearly 17 cents to 12.5 cents per bushel.
"The average basis in central
Illinois strengthened from minus 20 cents in early October to just
under minus 15 cents late last week. The recent price, basis and
spread behavior is somewhat surprising given the harvest of a
record-large U.S. crop that will likely exceed the current
forecast."
Good said that the higher corn
prices reflect a number of market factors. Sharply higher prices for
soybean meal suggest that there is likely to be some modest increase
in the demand for corn in livestock rations. Generally higher grain
and oilseed prices provided support for corn prices as well.
"In addition, the corn market
refocused on the world feed grain situation, which features the
prospects for a 3 percent reduction in output outside of the United
States and a 37 percent drop in year-ending stocks outside of the
United States," said Good.
"Fundamentally, however, much
of the renewed optimism in the corn market stems from relatively
large export sales and ideas that a weaker U.S. dollar and reduced
Chinese exports after the first of the year will propel U.S. exports
well above the current USDA projection."
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this article]
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For the 2003-04 marketing year,
the USDA currently projects U.S. corn exports at 1.8 billion
bushels, 12.5 percent more than shipped last year. As of Oct. 23,
the USDA's weekly report of U.S. corn export inspections showed
cumulative shipments during the first 7.5 weeks of the 2003-04
marketing year at 254 million bushels.
"That is a 23 percent increase
over inspections during the same period last year," said Good.
"Unshipped sales of U.S. corn as of Oct. 16 were reported at 375
million bushels, 38 percent larger than outstanding sales of a year
ago. Exports plus outstanding sales of U.S. corn are larger this
year than last year for all major importers -- Japan, Taiwan, Mexico
and Egypt.
"South Korea is still missing
from the list of major importers of U.S. corn. While South Korea is
the second largest importer of corn -- behind Japan, most of those
imports have been and continue to be originated from China. With a 6
percent smaller corn crop this year, China is expected to export 40
percent less corn during the current marketing year than during the
past year."
China exported a record 570
million bushels of corn last year, Good noted. Chinese exports have
been large this fall, leading to expectations that shipments will
drop sharply after the first of the year, sending more business to
the United States. The export optimism is also supported by
prospects of a 50 percent (120 million bushel) decline in Brazilian
corn exports this year.
"There are negative
fundamentals for the corn market, including the possibility of a
larger USDA production forecast in November," said Good. "In
addition, the continuation of low hog prices in the face of
escalating feed costs may result in further liquidation of hog
numbers. Midwest corn and soybean producers are also making noises
about planting more acres of corn in 2004. All of these negative
factors are on the back burner at this time."
In its October report of world
supply-and-demand prospects, the USDA projected the 2003-04
marketing-year average farm price of corn in a range of $1.90 to
$2.30 per bushel.
"The
average cash price implied by current futures prices is above the
upper end of that range," said Good.
[University
of Illinois news release]
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