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"Based on historical trading ranges,
current targets for both old crop cash corn prices and December 2004
futures are about 20 cents above current prices," said Darrel Good.
"Legitimate concerns about the 2004 crop could propel prices above
these targets.
"On the other hand, lower than expected
prices could eventually be generated by some combination of a large
increase in U.S. acreage, very favorable growing conditions or a
disappointing turn in exports. For now, it appears that there will
be good opportunities for producers to price remaining old crop
inventories and a portion of the 2004 crop."
Good's comments came as he reviewed
recent developments in the corn market.
"Since last fall, much of the
excitement in the crop markets occurred in the soybean and wheat
markets," he explained. "March 2004 soybean futures moved from below
$6 in September 2003 to near $8 by late October, driven by a small
U.S. harvest. March 2004 Chicago wheat futures rallied from about
$3.30 in October 2003 to near $4.20 in mid-November, driven by
prospects for tight world stocks.
"In contrast, May 2004 corn futures
traded between $2.20 and $2.55 from last summer through early
January 2004. However, the USDA reports released on Jan. 12 pumped
new life into corn prices. March futures moved to a contract high of
$2.735, and December futures reached a high of $2.72 on Jan. 16."
The price strength last week stemmed
from the USDA estimates showing a smaller than expected 2003 crop
and larger than expected consumption during the first quarter of the
2003-04 marketing year. Use during the quarter totaled 3.258 billion
bushels -- 9.7 percent larger than use during the first quarter last
year and 2.4 percent larger than the previous record use in 1999.
Year-over-year increases totaled 20.9
percent for exports, 8.3 percent for domestic processing use and 8
percent for domestic feed and residual use. Exports of 475 million
bushels for the quarter were well below the record 660 million in
1995, while feed and residual use about equaled the record of 1999.
Domestic processing use was record large due to expansion in ethanol
production. Corn use for all purposes this year is now forecast at
10.23 billion bushels, exceeding the record harvest of 2003 and
resulting in year-ending stocks under 1 billion bushels.
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this article]
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"Since November 2003, U.S. corn export
business has remained active," Good said. "As of Jan. 8, the USDA
reported that 673 million bushels of corn had been inspected for
export since Sept. 1, 2003. That is 21 percent larger than
inspections of a year ago.
"The export inspection estimates have
been lagging behind both the Census Bureau estimates through
November 2003 and the weekly estimates reported in the USDA's
"Export Sales" report. The latter report indicates cumulative
shipments as of Jan. 8 that were 20 million bushels larger than
indicated by the inspections report. The large increases in
shipments to date have been to Japan, Taiwan and Egypt."
As of Jan. 8, the USDA reported that
354 million bushels of U.S. corn had been sold for export but not
yet shipped. That compares to outstanding sales at this time last
year of only 222 million bushels. Those with larger outstanding
purchases include Taiwan, Egypt and Mexico. In addition, sales to
unknown destinations were reported at 75 million bushels, up from 41
million at the same time last year. Importantly, cumulative exports
plus unshipped sales to Indonesia, South Korea and Malaysia total 36
million bushels, compared with a total of only 5.5 million at this
time last year.
"These increases reflect the slowdown
in Chinese exports," said Good. "The USDA now projects
marketing-year exports from China at only 315 million bushels -- 20
million below the December forecast and 285 million less than
exported last year. The continued retreat of China from the export
market along with reduced South American exports suggest that U.S.
exports could exceed the current forecast of 1.975 billion bushels."
Prospects for small U.S. and world feed
grains stocks, along with expectations of a continuation of the high
rate of consumption, make the size of the 2004 U.S. corn crop very
important. The USDA will release a "Prospective Plantings" report on
March 31.
"Until then, there will be considerable
speculation about U.S. corn acreage in 2004," said Good. "Some
analysts have forecast a huge increase -- 3 to 5 million acres -- in
corn plantings as producers respond to the generally high corn
yields and low soybean yields in 2003. Others expect little or no
increase in corn acreage, due to recent strength in new crop soybean
prices and the rising costs of nitrogen fertilizer.
"As always,
planting season weather may have some role in the magnitude of corn
acreage."
[University
of Illinois news release]
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