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"Continued price strength, along with a decent
carry in the market, may also provide an opportunity to price some of the 2006
corn crop," said Darrel Good. "The December 2006 contract is currently about 15
cents below the contract high of $2.69. Historically, December futures have a
track record of trading to at least the $2.75 level. The inverse in the soybean
market makes 2006 pricing opportunities less attractive for now."
Good's comments came as he reviewed the markets and
ongoing crop concerns.
For the second consecutive week, rainfall totals
in dry crop areas of the eastern Corn Belt were disappointing, bringing
additional crop stress and higher corn and soybean prices. The National Weather
Service six- to 10-day forecast continues to call for above-normal precipitation
amounts in most growing areas. The latest forecast, for the period June 11
through June 15, also calls for above-normal temperatures in most eastern
growing areas.
"Much of the dry weather concern is focused on
Illinois, where topsoil moisture was rated to be short or very short for 68
percent [of] the crop area for the week ended May 29," said Good. "However, dry
areas also persist in other areas of the eastern Corn Belt, in Missouri and in
the northern Delta. While subsoil moisture remains adequate in most areas,
topsoil dryness is creating concerns about reduced plant photosynthesis, root
damage, increased insect susceptibility and, in the case of corn, adverse impact
on ear formation.
"It is likely that crop conditions and yield
prospects would improve significantly with near-term precipitation, but
forecasts do not favor precipitation for dry areas until late in the week."
Good noted that the job of the market is to
gauge the extent of yield loss by early season and current adverse weather
conditions. The USDA's weekly report of crop conditions, released on the
afternoon of June 6 after his comments were made, will provide much of the input
for that assessment.
While the report provides a very subjective
evaluation of crop conditions, it is extremely valuable for two reasons.
"First, it provides a weighted average picture
of crop conditions across the entire production region that is not available
from any other source," said Good. "Second, the methodology for collecting and
reporting crop conditions is consistent from year to year, providing a useful
evaluation of relative crop conditions."
For the week ended May 29, the USDA reported
that 62 percent of the U.S. corn crop was in either good or excellent condition,
down one percentage point from the previous week's rating.
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"A year ago, 68 percent of the crop
was rated in good or excellent condition," Good noted. "The report
for the week ended June 5 will contain the first comprehensive look
at soybean conditions. Some states released crop condition ratings
for soybeans last week, with Illinois showing 61 percent of the crop
in good or excellent condition."
Crop condition ratings provide an
incomplete and changing picture of yield potential but are a useful
barometer of yield potential. Over the past 19 years, there has been
a generally strong relationship between the final crop condition
ratings of the season and the U.S. average yield. Using
trend-adjusted yield, the percent of the crop rated good or
excellent in the final report of the season has explained about 85
percent of the variation in U.S. average yields over that time
period.
"To expect trend yields in 2005 --
about 145 bushels for corn and 40 bushels for soybeans -- the final
report of the year needs to show about 68 percent of the corn crop
and 58 percent of the soybean crop in good or excellent condition,"
Good noted. "Each one percentage point variation from those levels
would suggest a 0.6 bushel higher or lower corn yield and a 0.2
bushel higher or lower soybean yield.
"As the season progresses, then, the
average yield to be expected if current crop conditions persist can
be calculated."
The disappointing rain event of the
past weekend pushed November 2005 soybean futures above $7. That
contract has had a trading range in excess of 30 cents in the last
three trading sessions, as precipitation expectations changed.
December 2005 corn futures challenged the recent high of $2.54, with
a trading range near 10 cents since Thursday of last week.
"It appears that prices will be
well-supported as long as crop concerns persist," said Good. "Even
if near-term weather conditions improve, uncertainty about summer
weather patterns and the potential for soybean rust will provide
opportunities for volatile prices later in the growing season."
While U.S. weather and crop
conditions will provide much of the direction for corn and soybean
prices, USDA reports to be released on June 30 will provide some
additional fundamental data. The June 1 grain stocks report will
provide an update on the rate of domestic corn consumption and will
shed additional light on the question of the size of the 2004
soybean crop.
"The acreage report will provide
closure on the debate about the magnitude of corn and soybean
plantings, as well as acreage of other spring-planted crops," Good
said.
[News release from the
University of Illinois College
of Agricultural, Consumer and Environmental Sciences] |
