"There is a relatively high probability of large crops, increasing
stocks, and lower corn and soybean prices in the 2013-14 marketing
year," Good said. "Such a probability might warrant some aggressive
pricing of next year's production. However, current tight supplies
and production uncertainty are expected to keep prices relatively
high in the early part of the new year. If that is the case, the
spring price guarantees for crop revenue insurance could once again
be at very high levels, offering protection from low prices that
would result from large crops," he said.
Good said that five or
six years ago, the corn yield discussion was dominated by thoughts
that corn yields were increasing due to new seed technology and that
corn yields were "bulletproof." That discussion seemed to gloss over
the impact of an extended period of very favorable weather.
"The pendulum has now swung in the other direction, with the
current corn yield discussion dominated by the potential of an
extended period of dry weather and sub-par yields," Good said. "Only
time will tell if the concerns are legitimate. For now, such
concerns may motivate another year of large corn acreage. A return
to a near-trend corn yield would then result in a very large crop in
2013. A large crop along with a plateau in the amount of corn used
in the production of ethanol would result in a substantial buildup
of stocks during the 2013-14 marketing year and corn prices at or
below the levels prior to the drought of 2012."
Good reported that soybean prices are being supported by a rapid
pace of exports and domestic consumption. However, prospects are
still in place for a record harvest in South America. "Such a crop,
in combination with a rebound in U.S production in 2013, would
likely result in a buildup of stocks next year and prices at the
level of late 2011," he said.
According to Good, March 2013 corn futures dropped below $5.50 in
early May 2012 and were drifting lower when U.S. drought conditions
turned prices higher starting in mid-June. The price of that
contract peaked in early August, just short of the $8.50 mark. March
2013 soybean futures dropped below $11.50 in December 2011 before
South American drought conditions and then U.S. drought conditions
sent that contract above $17.25 by mid-September 2012.
"Corn prices have declined by more than $1 since the late-summer
peak, while soybean prices have declined by more than $3," Good
said. "The general expectation has been that prices of both
commodities would return to pre-drought levels as early as 2013 as
consumption adjusted to the lower supplies and as production
rebounded in both the South America and the United States. The
futures market currently reflects expectations that corn prices will
moderate substantially from current levels by the fall of 2013 as
larger crops are harvested in Argentina and then in the U.S.," he
[to top of second column]
Good reported that December 2013 futures, for example, are priced
95 cents below December 2012 futures. The soybean market expects
prices to moderate from current levels by the summer of 2013 as a
large South American crop is harvested. August 2013 futures prices
are nearly 60 cents lower than March 2013 prices. Further price
reductions are expected into the fall of 2013 as a larger U.S. crop
is harvested. November 2013 futures are about 85 cents below the
price of August 2013 futures. Still, the prices of both commodities
for delivery in the 2013-14 marketing year are well above the levels
prior to the drought of 2012.
"Corn prices are being supported at relatively high levels due to
a combination of production uncertainty and uncertainty about
whether the rate of consumption has slowed sufficiently," Good said.
The USDA's December Grain Stocks and Annual Crop Production
reports to be released on Jan. 11 will provide more clarity about
the rate of domestic feed and residual use of corn and the
availability of U.S. corn for the remainder of the current marketing
"Those reports are expected to reveal a high rate of feed and
residual use of corn during the first quarter of the 2012-13
marketing year and a smaller 2012 harvest than previously forecast,"
"Production uncertainty, on the other hand, will persist much
longer. The potential size of the South American crops will be
clearer by February. Current concerns are focused on the impact of
extremely wet conditions in parts of Argentina. Prospects for the
U.S crop will not be cleared up for several months," he said.
[Text from file received from the
University of Illinois College of Agricultural, Consumer and