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"It is still very early in the
growing season, so that prices can be expected to remain
volatile," said Darrel Good. "The National Weather Service
forecast for the period June 5 through June 9 is for normal to
above-normal temperatures for the Plains states and the East and
for above-normal precipitation for the bulk of the corn- and
soybean-producing states.
"Since recent rainfall coverage and amounts have been generally
less than forecast, the market will likely take a 'wait and see'
attitude toward the latest forecast. If conditions unfold as
forecast, prices will likely retreat sharply from current levels.
Unfavorable weather would likely set off another round of
commercial and speculative buying."
Good's comments came as he
reviewed the effects of weather and crop conditions on the soybean
and corn markets. The start to the 2005 growing season has raised
some concerns about production potential, resulting in higher
prices over the past two weeks.
"Warm, dry conditions in early
April allowed corn planting to get an early start, particularly in
Illinois," said Good. "Excess precipitation in some areas, along
with widespread low temperatures, created some germination
problems, resulting in some replanting of the crop. In addition,
plant populations have been reduced to less-than-optimal levels in
some areas.
Now, dry conditions in large
portions of the eastern Corn Belt are raising further concerns
about development of the corn crop.
"The soybean crop has also
suffered some planting and germination problems due to areas of
excessive precipitation or abnormally dry conditions," Good said.
"Some areas in central Illinois, for example, have had less than
25 percent of normal precipitation since March 1."
Dry conditions, he added, have
also resulted in a significant decline in the crop condition
ratings for the U.S. winter wheat crop, suggesting that production
will fall short of the USDA's May projection of 1.59 billion
bushels.
"The United States is not alone in
experiencing weather and crop concerns," he said. "Dry weather
significantly reduced soybean production in southern Brazil. Areas
of Australia, and to a lesser extent Asia, are being impacted by
dry weather as well. This year appears to be significantly
different from 2004, when conditions were very favorable for crop
production in most areas of the world, with the notable exception
of southern Brazil."
Corn and soybean futures have
responded to the broad spectrum of crop concerns. November 2005
soybean futures traded to near $6.90, about 40 cents above the
previous contract high and about 80 cents above the mid-May low.
Spot cash soybean prices also moved to marketing-year highs in
many areas. The central Illinois price was near $6.70 early on May
31, about $1.90 above the low reached on Oct. 13, 2004. Basis
levels have strengthened significantly over the past several
weeks.
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December 2005 corn futures traded to
$2.45, well below the contract high of $2.885 reached in April 2004
but nearly 25 cents above the contract low reached in mid-May. The
spot cash price of corn in central Illinois was near $2.05, the
highest since early September 2004 and about 35 cents above the low
reached in early November 2004.
"Price reaction in the soybean
market has been stronger than in the corn market," said Good. "One
reason may be the perception that corn plantings exceeded March
intentions and that soybean acreage fell short of intentions. A
combination of strong demand and crop concerns has increased the
speculative interest in the soybean market.
"The trading range in November 2005
soybean futures, December 2005 corn futures and in the central
Illinois spot cash price for both crops so far this marketing year
are within the range experienced since the early 1970s. However, the
range in November soybean futures so far this year has been exceeded
in 24 of the past 32 years. The range in the central Illinois cash
price has been exceeded in 19 of the past 31 years. The range in
December corn futures has been exceeded in 26 of the past 32 years,
and the range in the spot cash price has been exceeded in 27 of the
past 31 years."
Weather markets typically have
resulted in high prices during the growing season, generally
followed by much lower prices after harvest, Good noted.
"The timing of the growing season
price peak, however, has varied and is difficult to predict
precisely because it is weather-determined. The challenge is to take
advantage of the period of high prices by timing the sales of both
old-crop inventories and expected production.
"For old-crop inventory, a naïve
strategy of metering out sales during this period of weather
uncertainty, with balloon sales if and when the weather turns more
favorable, could be followed. New-crop sales are a bit more
problematic because of production uncertainty, but the same naïve
strategy as for old crop is not without merit. The actual strategy
might depend on the type of crop or revenue insurance in place and
the willingness to use options to manage both production and price
risk."
[News release from the
University of Illinois College
of Agricultural, Consumer and Environmental Sciences]
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