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"It would be surprising, particularly in light of historical
price patterns, if prices do not establish new highs for the
2005-06 marketing year, even if that is just a growing-season
spike," said Darrel Good. Good's comments came as he reviewed
corn prices. Cash corn prices during the 2005-06 marketing year
have followed a typical "large crop" pattern. Prices were lowest
at harvest, reflecting an extremely weak basis, and highest --
so far -- in the spring.
The average daily spot cash price of corn in central
Illinois, for example, reached a low of $1.635 on Oct. 18. That
price was 38.5 cents under December 2005 futures and 66.25 cents
under July 2006 futures. The average cash price reached a high
of $2.235 on April 11 and stood at $2.145 on May 5.
"While the July basis strengthened by 36.75 cents from Oct.
18 to May 5, it remained very weak, at minus 29.5 cents," said
Good. "The basis was minus 20 cents on the same date last year,
and the three-year average basis for that date is minus 12
cents.
"For the 2006 crop, December 2006 futures established a
contract low of $2.37 in November 2005 and a contract high of
$2.75 in early April 2006, in the aftermath of the USDA's
Prospective Plantings report. That contract settled at $2.625 on
May 5."
Good said that a few observations can be made about prices
and price patterns over the past seven months.
"For cash prices in central Illinois, if the range from high
to low so far this year -- 60 cents -- is not expanded, it would
be the fourth-smallest marketing-year price range in modern
price history, that began in 1973," said Good. "The smallest
range was 44.5 cents in 1990-91, and the largest was $2.525 in
1995-96.
"Second, the highest cash price to date -- $2.235 -- would be
the fifth-lowest high in 33 years. The lowest high was $1.855 in
1986-87, and the highest high was $5.25 in 1995-96."
Third, Good noted, if the current high is not exceeded,
2005-06 will be only the second year in 33 years that the cash
price peaked in April. The only other time that occurred was in
2003-04.
For December 2006 futures, the range from high to low to date
is 38 cents. In the previous 35 years, the trading range for
December futures was not less than 41 cents, the amount for the
1971 contract. The second smallest trading range was 55 cents,
for the 1991 contract. Since 1973, the highest price for a
December futures contract has been $2.75 or less only five
times.
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"Historical price patterns, while of some interest, really have no
particular predictive power," Good said. "The market fundamentals
peculiar to this year will direct prices for the next four months.
"Considerable uncertainty surrounds the potential size of the market
for U.S. corn over the next 16 months. Rapid growth in ethanol
production and growing indications that the recovery in U.S. exports
will continue means that market size will be growing significantly.
The USDA will make its first forecast of 2006-07 market size on May
12."
As usual at this time of year, the most uncertainty surrounds the
potential size of the 2006 U.S. corn crop. Both acreage and yield
uncertainties exist.
"For planted acreage, many observers seem to believe that
producers will plant more corn than the 78 million acres indicated
in the USDA's March Prospective Plantings report," said Good. "The
combination of rapid planting progress -- with exceptions for a few
states -- and the surge in corn prices in early April account for
the expected increase.
"The increase in corn prices, in absolute terms as well as in
relation to soybean prices, which occurred in early April, however,
has not persisted. December 2006 corn futures settled at $2.615 on
March 1, $2.60 on March 30 and $2.625 on May 5. November 2006
soybean futures settled at $6.145 on March 1, $6.155 on March 30 and
$6.2525 on May 5, after trading to a low of $5.85 in early April."
Good noted that except for the immediate reaction to the report
of planting intentions, prices have not encouraged a change in
planting plans. The USDA's June Acreage report will reveal the
extent to which producers reacted to the initial price change and
the favorable spring planting season.
"Since 1996, the beginning of complete planting flexibility,
planted acreage has deviated from March intentions by more than 1.5
million acres in three years -- 1997, 2000 and 2004," said Good.
"The largest increase from March intentions was1.925 million acres
in 2004."
Yield prospects for 2006 are obviously difficult to anticipate.
U.S. average yields have shown less deviation from trend value over
the past 10 years than during the previous 20 years.
"Average yields have been very near trend values since 1996, with
the exception of the below-trend value in 2002 and the above-trend
value in 2004," said Good.
"For 2006, improving moisture conditions and an early planting
bode well for yield prospects, but the critical part of the growing
season is yet to come."
[University
of Illinois College of Agricultural, Consumer and Environmental
Sciences news release]
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