"Recent history has been one of growing demand for U.S.
commodities, tight U.S. and world stocks of feed grains and
wheat, sporadic production problems, and record-high prices,"
said Darrel Good. "With record-large feed grain, wheat and
soybean crops expected for 2008-09 and some cracks forming in
the demand picture, prices may take on a weaker tone.
addition, prices are not expected to return to the average level
experienced in the period 1973 through 2006. However, with the
much higher level of production costs for 2009, prices below the
early August lows of $4.50 for corn and $11.50 for soybeans
would begin to substantially reduce operator returns,
particularly for those with relatively high land costs."
Good's comments came as he reviewed corn and soybean price
performance, which he termed "jumpy," in the wake of the USDA's
August Crop Production report.
"Factors thought to be important for prices have provided
very mixed signals for price direction," he said.
On the production side, a fair amount of skepticism exists
about the USDA's forecast of production potential. Some argue
that both acreage and yield forecasts are too optimistic.
"USDA's expanded survey coverage for the August report should
make the acreage estimate a bit more accurate than usual," he
said. "Still, harvested acreage reflects intentions, and with
more than a normal amount of late-planted and replanted crops,
as well as unplanted areas, estimates could change.
"On the surface, the USDA estimates seem to capture the
effect of abandoned acreage."
In Iowa, for example, the difference between planted acreage
of corn and acreage harvested for grain was 350,000 acres last
year but is forecast at 800,000 acres this year. In Illinois,
the difference was 150,000 acres last year and the forecast for
this year is 400,000.
For soybeans, the differences in planted and harvested
acreage in 2007 were 30,000 and 50,000 acres for Iowa and
Illinois, respectively. The differences this year are forecast
at 200,000 and 150,000, respectively.
The August U.S. average yield forecast for corn is very
consistent with crop condition ratings in early August and with
the forecast based on our crop weather models, Good noted.
"The August U.S. average yield forecast for soybeans was well
below that indicated by crop condition ratings and our crop
weather models, perhaps reflecting the lateness of the crop," he
said. "Regional yield forecasts within states appear to be very
consistent with weather patterns to date."
In Iowa, for example, average soybean yields are expected to
be lower than in 2007 in each of the nine crop reporting
districts. For corn, the average yield is expected to be higher
than that of last year in the northwest district and
substantially lower in the east-central and southeast districts.
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"In Illinois, both corn and soybean average yields are expected to
be well above the 2007 averages in the southern two crop reporting
districts, where drought was an issue last year," Good said. "Yields
of both crops are expected to be sharply lower in the east crop
reporting district, where flooding was more widespread this spring."
While August has been on the dry side in large areas of Illinois
and Indiana, the September U.S. average yield forecast for corn will
likely remain above our trend estimate of 151 bushels, he noted.
"Yield forecasts may remain high after that if some late-season
rain is received in the dry areas and if the crop reaches maturity
without a widespread killing frost," he said. "Soybean yield
prospects are more difficult to anticipate, particularly since the
August forecast was lower than suggested by other indicators.
"Parts of the eastern Corn Belt have been dry in August, but much
of the Delta has received beneficial precipitation. The crop is more
vulnerable than corn to late-season disease and insect pressure, and
cooler weather in August may have hampered development."
While production uncertainty has and may continue to provide some
support to corn and soybean prices, demand concerns are beginning to
weigh on prices.
"Declining energy prices and a sharp drop in ethanol prices mean
that the break-even corn prices for ethanol producers are now much
lower," he said. "Prospects of large world supplies of feed wheat
and a strengthening of the U.S. dollar suggest that U.S. corn
exports could continue to be a little sluggish.
"Liquidation of livestock numbers may slow, but liquidation that
has already occurred may slow domestic feed demand as well."
The slowdown in the pace of the domestic soybean crush and a more
abundant world vegetable oil situation are also indications of
potential demand weakness, he added.
"Soybean oil prices have declined by about 25 percent since the
first of July," Good said. "Emerging concerns about slowing world
economic growth also translate into expectations for slowing export
demand for U.S. commodities and further weakness in energy prices."
[Text from file received
from the University
of Illinois College of Agricultural, Consumer and Environmental