Continued support for corn prices
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[December 06, 2012]
URBANA -- Corn prices peaked in August, moved
sharply lower in September and have been in a sideways pattern over
the past two months. Within that sideways pattern, prices have moved
higher over the past two weeks, with March 2013 futures trading
within 10 cents of the post-September high. The recent rally has
been fueled by some supply concerns and more optimism about
near-term demand, said University of Illinois agricultural economist
"There are two concerns about potential supply of corn in 2013,"
Good said. "First, the ongoing wet weather in Argentina may reduce
the magnitude of planted area of corn relative to intentions. Fewer
acres would threaten the projected rebound in production. The USDA
has forecast the 2013 harvest at a record 1.1 billion bushels, a
third larger than the drought-reduced harvest of earlier this year.
The USDA will update the forecast in the monthly World Agricultural
Production report to be released on Dec. 11, but a large change in
that forecast is not expected this early in the season. During last
year's drought, the forecast of production was not reduced in
December, but was reduced sharply in January and again in February.
The potential implications of wet weather on acreage and yield are
even more difficult to discern than the implications of drought
conditions," Good said.
The second supply concern is for the
upcoming U.S. crop in the face of continuing widespread drought
conditions, Good said.
"The latest U.S. drought monitor map shows exceptional drought
conditions in large portions of the Plains states and severe to
extreme drought conditions extending to the Mississippi River and in
northern Illinois and southern Wisconsin," he said. "Significant
drought conditions also persist in some Southeastern states. Very
dry soil conditions underscore the need to replenish soil moisture
and for timely rain during the 2013 growing season. The production
risk of continuing drought conditions is being balanced against the
potential of a record corn harvest if acreage is not reduced and
2013 growing-season weather is generally favorable for corn yields.
The balancing act is reflected in futures prices for the 2013 crop
that are below old-crop prices, but high by historic standards."
According to Good, the pace of U.S. corn exports remains very
low, but some increase in the demand for U.S. corn is expected yet
this marketing year. Export inspections during the first 13 weeks of
the marketing year totaled only 208 million bushels, 48 percent less
than cumulative inspections of a year ago. The weekly rate of
inspections needs to increase from the current average of 16 million
bushels to 24 million in order to reach the projection of only 1.15
billion bushels for the year. Unshipped export sales totaled only
278 million bushels as of Nov. 22, which is 238 million less than on
the same date last year. New sales need to average 17 million
bushels per week for sales to reach 1.15 billion bushels. Sales
exceeded that average for the two weeks ended Nov. 22, and the more
rapid pace may continue as supplies of competing grains are reduced.
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"Domestically, ethanol production continues to be well below the
rapid pace of a year ago," Good said. "Production last year,
however, was accelerated by the impending end to the blenders' tax
credit. Through the first quarter of the 2012-13 marketing year,
cumulative ethanol production was about 9 percent less than during
the same period last year. The USDA has projected a 10 percent
decline in the amount of corn used for ethanol production during the
current marketing year. The decline in expected ethanol production
reflects the plateauing of domestic consumption, increasing imports
from Brazil and steady to declining exports of ethanol. The
so-called blend wall will continue to limit domestic ethanol
consumption and production, but corn use this year should at least
reach the USDA projection."
The rate of feed use of corn is not known, Good said. "The USDA
projects use for the year at only 4.15 billion bushels, nearly 9
percent less than apparent use of last year. However, marketing year
feed and residual use estimates and projections are confused by the
harvest of a large quantity of corn before the start of the 2012-13
marketing year on Sept.1. Taken together, current livestock
inventories, slaughter numbers and slaughter weights suggest strong
overall feed demand. The number of cattle on feed on Nov.1 was 5
percent less than that of a year ago, but the number of dairy cows
during October was only 0.3 percent less. The placement of
broiler-type chicks during the first four weeks of November was only
0.7 percent less than those of a year ago. The average number of
layers on hand during October was 1.4 percent more than that of a
year earlier. October hog slaughter was record large and exceeded
that of a year ago by 10 percent. Average cattle and hog slaughter
weights in October were near those of a year ago," Good said.
Good concluded that the USDA's Dec. 1 stocks estimate and the
final 2012 U.S. production estimate to be released on Jan. 11 will
add some clarity to corn market fundamentals. Current conditions
point to continued strong corn prices until then.
[Text from file received from the
University of Illinois College of Agricultural, Consumer and