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"The 'typical' rebound in cash prices from fall lows to
spring-summer highs in Illinois is about 70 cents per bushel,"
said Darrel Good. Good's comments came as he reviewed recent
corn prices. December corn futures reached a growing-season high
of $2.72 on July 18 and have moved steadily lower since. A
contract low of $1.94 was reached on Nov. 7, just 3 cents above
the low for the December 2004 contract.
"The steady decline in prices generally reflects the fact
that the 2005 U.S. crop turned out to be much larger than
midseason expectations," said Good. "Market participants tend to
point to higher-than-expected yields in dry areas like Illinois
in explaining why the market misjudged yield and production
potential.
"However, the real surprise is in high-yielding states like
Iowa. A crop yield model that correlates growing-season
precipitation and temperature to state average yields projects
the 2005 Illinois average yield only four bushels below the
USDA's October forecast. However, the crop yield model for Iowa
projects yields 15 bushels below the USDA's October forecast."
While corn futures prices continue to drift lower, cash
prices in many areas have increased modestly over the past three
weeks. The average overnight cash bid in central Illinois, for
example, reached a low of $1.635 on Oct. 18 and recovered to
$1.705 on Nov. 4. The average central Illinois basis was at the
weakest level in early October.
"The weak basis in Illinois reflected a combination of
factors, including large supplies, rapid harvest, transportation
bottlenecks and high transportation costs," said Good. "It
appears, however, that transportation issues and the rapid
harvest were larger contributors to the weak basis than the
large grain supply.
"Based on the USDA's estimate of Sept. 1 stocks of all grain
in Illinois and the October USDA forecast of corn, soybean and
sorghum production in the state, the total fall grain supply was
5 percent smaller than the supply of a year earlier. This
contrasts to the situation in Iowa, where the total of September
stocks and production of fall-harvested crops was 7.5 percent
larger than the total of a year ago."
Since the first week of October, the average basis in central
Illinois has strengthened about 14 cents. On Nov. 4, the average
basis was minus 25 cents. That average was 1.5 cents stronger
than on the same date last year. The strengthening of the basis
was reflected in a general decline in the loan deficiency
payment rate. In Illinois, that rate peaked at 48 cents but
stood at 42 cents on Nov. 7. A continued strengthening of the
basis through year-end is expected.
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 "While corn prices are apparently establishing seasonal lows,
current fundamental factors do not point to a significant increase
in the immediate future, barring a surprise in the November
production forecast," said Good. "The USDA's November crop
production report, to be released on Nov. 10, will provide the last
crop size information until the release of the final production
estimate on Jan. 12.
"For the next two months, the market will be influenced mostly by
the rate of use of the 2005 crop. Little information on domestic
feed use will be available until the release of the Dec. 1 grain
stocks report on Jan. 12. The most plentiful information will be on
the pace of exports."
Good noted his earlier concern about the early pace of U.S. corn
exports.
"Export performance to date varies by importer," he said. "Five
countries account for about three-quarters of U.S. corn exports --
Japan, Taiwan, South Korea, Egypt and Mexico. Export commitments --
shipments plus outstanding sales -- are lagging the pace of a year
ago to Japan and Egypt but exceed last year's pace for the other
three countries.
"As of Nov. 3, cumulative export inspections to all destinations
were about equal to those of a year ago. The USDA projects a 10
percent year-over-year increase in U.S. exports."
After the first of the year, the corn market will be influenced
to some degree by expectations about the magnitude of corn acreage
in 2006. Escalating production cost for corn relative to soybeans is
generating expectations of reduced corn acreage and increased
soybean acreage in 2006.
"Current futures prices, however, do not provide a strong signal
about acreage changes," said Good. "Closing futures prices on Nov. 4
reflected a 2006-07 marketing-year average farm price near $2.40 for
corn and near $6.05 for soybeans. Depending on yield expectations
and cost differences, those prices might favor soybeans over corn by
a small margin.
"The USDA's report of winter wheat seedings, to be released on
Jan. 12, will provide some insight into year-over-year changes in
the amount of acreage available for spring-planted crops."
[News release from the
University of Illinois College
of Agricultural, Consumer and Environmental Sciences] |
