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"There is some chance that the market will view the August
production forecasts as the highest of the forecast cycle that
continues through November," said Darrel Good. "For December corn
futures to move above the June high near $2.70, the market will have
to anticipate a crop below 9.6 billion bushels. "To push November
soybean futures above the June high near $7.70, the market will have
to anticipate a crop of less than 2.8 billion bushels."
Good's comments came as he discussed the upcoming release Aug. 12
of the first forecast of the size of the 2005 U.S. corn and soybean
crops. The final estimate of the crop size could be much different
than the August forecast, but this report provides the starting
point for guessing the final size.
"The USDA's weekly report of crop conditions suggests that the
August forecast of the U.S. average corn yield will be below trend
value of about 145 bushels per acre," he said. "The percent of the
corn crop rated in good or excellent condition peaked at 68 percent
for the week ended June 19. The percentage had declined to 53
percent by July 23.
"It is not unusual for crop condition ratings to decline as the
growing season progresses, but the decline has been large this year.
Based on the best fit of the relationship between crop conditions
and average yield over the past 19 years, a rating of 53 percent
good or excellent at the end of the growing season would project to
a yield of 140.5 bushels. For the current year, crop ratings are
likely to continue to decline somewhat through the end of the
season. In addition, crop ratings may not accurately reflect
pollination problems, resulting in an overstatement of yield
potential."
Good noted that in addition to yield uncertainty, there is some
uncertainty about the magnitude of harvested acreage of corn. In the
extreme drought areas, some additional acreage may be abandoned.
Based on the current level of futures prices for the 2005-06
marketing year, the market appears to be trading a crop of about 10
billion bushels, or a yield of 135 to 136 bushels. Prices have
declined more than 20 cents from the recent highs.
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For soybeans, the percentage of the crop rated good or excellent
peaked at 64 percent for the week ended June 12 and declined to 54
percent by July 24.
"If the current ratings are maintained through the end of the
season, an average yield near 40.3 bushels would be predicted by the
historic relationship between crop ratings and average yield," said
Good.
"There is potential for the soybean crop ratings to change
significantly during August. A hot, dry start to the month in many
areas will likely result in a further decline in ratings."
Based on current futures prices for the 2005-06 marketing year,
the soybean market appears to be trading a crop of about 2.85
billion bushels, reflecting a national average yield near 39.5
bushels. Sincere there has been considerable variation in the
relationship between year-ending stocks and price, the calculations
made here should be interpreted with caution, Good noted.
"Current prices are about 80 cents below the contract highs
reached in June," he said.
In addition to the forecast of the size of the U.S. crop, there
will be considerable interest in the forecasts of production for
individual states.
For corn, the current crop condition ratings suggest that
production will be on the small side in the eastern Corn Belt and
more normal in the western Corn Belt and in the Southeast.
"Large production in the West, along with current large stocks of
old-crop corn, suggests that basis levels will remain relatively
weak, at least through the harvest period," said Good. "Eastern
regions might expect a stronger basis, although current bids for
harvest delivery in Illinois do not reflect an unusually strong
basis.
"For soybeans, current ratings suggest low average yields and
production in Arkansas, Illinois and Missouri. Production potential
remains high in most of the western and southeastern states."
[News release from the
University of Illinois College
of Agricultural, Consumer and Environmental Sciences]
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