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"The corn price decline following the
September USDA crop production report has pushed harvest bids to
near the Commodity Credit Corporation loan rate," said Darrel Good.
"Prices at such a low level, coupled with a modest carry in the
price structure, suggest that storing the newly harvested crop
unpriced is a low-risk strategy. At risk is the cost of storage.
"In contrast, soybean prices are well
above the CCC loan rate. With half of the marketing window --
pre-harvest -- now passed, new-crop soybean prices are at the
highest level of the year. In addition, there is no carry in the
price structure. This combination of factors is providing an
opportunity to price a significant portion of the 2003 crop."
Good's comments came as he reviewed the
USDA report. November 2003 soybean futures moved to a contract high
of $6.30 on Sept. 11 and settled at $6.23 on Sept. 12. The 26.5-cent
increase by the close on Friday reflected a crop forecast of 2.644
billion bushels, 110 to 115 million less than reflected in the
pre-report average trade guess.
"The September USDA forecast was 218
million bushels, or 7.6 percent, below the August forecast," said
Good. "That is one of the largest August-to-September reductions of
the past 30 years, second only to the 308 million, 16.7 percent
reduction of 1983.
"The U.S. average yield is projected at
36.4 bushels per acre, three bushels below the August projection and
1.4 bushels below the 2002 average yield. At the projected level,
the 2003 yield will be the lowest since 1995."
Compared with the August forecast,
September yield forecasts were much lower in Iowa, Kansas,
Minnesota, Missouri, North Dakota, South Dakota and Wisconsin. Yield
prospects improved in Alabama, Kentucky, Mississippi and Tennessee.
Yield prospects in the eastern Corn Belt states changed little from
August to September.
"The smaller soybean crop will require
a reduction in consumption of U.S. soybeans during the 2003-04
marketing year," said Good. "The USDA expects that reduction to be
accomplished by higher prices and a larger South American crop. The
2003-04 marketing-year average farm price of soybeans is projected
in a range of $5.25 to $6.15, compared to $4.55 to $5.55 projected
last month and the $5.50 average of 2002-03.
"The 2004 South American crop, which
has yet to be planted, is projected at 3.573 billion bushels, nearly
200 million larger than the 2003 crop. The increase is expected to
come from a 7 percent increase in soybean acreage and a modest 1
percent reduction in average yield."
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December 2003 corn futures declined 14
cents following the release of the September production forecast of
9.944 billion bushels. The forecast was 120 million bushels below
the August forecast but 144 million larger than the average trade
guess. The national average yield is projected at 138.5 bushels per
acre -- 1.4 bushels below the August forecast but 8.5 bushels above
the 2002 average and only one-tenth of a bushel below the 1994
record yield.
"Compared to the August yield
forecasts, yield prospects were unchanged to higher in the eastern
and southeastern growing areas and lower in the western and northern
areas," said Good. "At 9.44 billion bushels, the 2003 U.S. corn crop
will be large enough to meet expected domestic demand and export
requirements but will likely result in a further decline in
year-ending stocks.
"The USDA projects the 2003-04
marketing-year average farm price in a range of $2.10 to $2.50, 10
cents higher than the August projection. The 2002-03 marketing-year
average was $2.30."
Good noted that the market now awaits
the October production forecast. Since 1970, there has been a very
low correlation between the September change in the production
forecast and the change in the forecast in October. That is, the
direction and magnitude of the change in the production forecast in
October 2003 cannot be predicted based on the change that occurred
in September, particularly for soybeans. Opinions about potential
changes in October vary sharply this year.
"In addition
to crop size, the market will also pay close attention to the rate
of consumption, particularly soybean consumption," said Good. "With
soybean export sales off to a rapid start, the market will want to
see evidence of a decline in overall consumption that is in line
with the USDA projections."
[University of Illinois news release] |
