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Undervalued crops?

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[December 09, 2008]  URBANA -- The ability of the stock market to close higher on Dec. 5 following poor economic news is a little encouraging for crop prices, said a University of Illinois Extension marketing specialist.

"Recessionary pressures will likely continue, but the biggest impact on crop prices may have already occurred," said Darrel Good.

InsuranceGood's comments came as he reviewed corn, soybean and wheat prices, all of which continue to be pressured by negative economic news.

"Confirmation that the unemployment rate continued to increase in November and crude oil prices were near $40 per barrel pushed cash corn prices to the lowest level in more than two years and soybean prices to the lowest level in about a year and a half," he said. "The cash price of soft red winter wheat dropped to a 2 1/2-year low."

Specific demand indicators for corn and soybeans remain mixed, he added.

"There was rare good news for corn demand last week," he said. "From Dec. 2 through Dec. 4, the USDA announced export sales to Mexico totaling about 23 million bushels, with most to be delivered during the current marketing year.

"The Chinese government announced that it would buy an additional 200 million bushels of corn for the strategic reserve. Export sales of corn to destinations other than Mexico, however, remain very soft."

For the week ended Nov. 27, the USDA reported new sales to all destinations totaled only 15.2 million bushels. New sales over the past six reporting weeks averaged only 16.2 million bushels. To reach the USDA projection of 1.9 billion bushels for the year, new sales need to average about 29.5 million bushels per week for the remaining three quarters of the marketing year


"Corn demand is also receiving some modest support from ethanol prices, which have not declined nearly as rapidly as corn prices," Good added. "The average price of ethanol at Iowa plants was quoted at $1.48 per gallon on Dec. 5. The price at those locations is about 20 cents lower than in mid-October, while wholesale gasoline prices have declined by about 70 cents.

"Prospects for hog prices to maintain 2008 levels in 2009 are also slightly supportive for feed demand. That optimism is partly offset by weakness in cattle prices and general pessimism about meat demand if economic performance continues to weaken."

The USDA will update world production and consumption forecasts on Dec. 11. The projection of use and year-ending stocks of U.S. corn will be important not only for the current marketing year, but will also have implications for the amount of corn acreage that may be needed in 2009.

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"The current projection of year-ending stocks and ideas that consumption will likely increase in the 2009-10 marketing year has suggested the need to increase corn plantings by 4-5 million acres in 2009," he said. "A slower rate of use and larger ending stocks would imply that a smaller increase will be needed."

For soybeans, China continues to aggressively buy U.S. soybeans, but the overall sales pace slowed during the most recent reporting week. New sales for the week ended Nov. 27 totaled only 13.2 million bushels, following an average of about 29 million during the previous two weeks.

"The USDA will release a new forecast of the likely size of the 2009 South American crop on Dec. 11," said Good. "That forecast will have some implications for likely competition for U.S. soybeans in the export market during the last half of the marketing year.

"Reports on Dec. 11 will also contain updated projections for the 2008-09 marketing year ending stocks in the United States. The level of those stocks will have implications for soybean acreage requirements in the United States in 2009. Stocks over 200 million bushels and a return to a trend yield in 2009 would warrant a 1.5- to 2-million-acre reduction in U.S. soybean acreage in 2009."

For U.S. wheat, prospects of a larger crop estimate for Russia, a stronger U.S. dollar and a lower export tax in Argentina all point toward weakening export demand. The USDA will report winter wheat seedings on Jan. 12, 2009.

"Seedings of soft red winter wheat are expected to be down following the sharp increase in 2007," Good said. "A decline in soft red winter wheat production in 2009 would allow some reduction in the large inventory expected for the end of the current marketing year."

[Text from file received from the University of Illinois College of Agricultural, Consumer and Environmental Sciences]



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