"So far, prices seem to be following the classic pattern associated
with small crops -- peaking early in the marketing year and then
declining as the year progresses," said University of Illinois
agricultural economist Darrel Good.
According to Good, the futures
market reflects expectations that prices will continue to decline,
especially into the 2013-14 marketing year.
"The expected rebound in South American soybean production,
Argentine corn production, and U.S. corn and soybean production in
2013 all contribute to the expectation of lower prices," he said.
"If those crops are as large as generally expected, prices will be
even lower than currently reflected in the futures market."
Good said the USDA is forecasting record South American
production of both crops.
"If planted acreage of corn in the United States in 2013 is at
the same level as in 2012 and the U.S. average yield is near a trend
value of 162.5 bushels, the crop would total 14.6 billion bushels,
about 1.5 billion larger than the record crop and record consumption
of the 2009-10 marketing year," Good said.
Similarly, he reported, if soybean acreage is maintained at the
2012 level and the average yield is near the trend value of 43.8
bushels, the 2013 crop would reach 3.34 billion bushels, near the
record levels of 2009 and 2010. A combination of record, or
near-record, South American and U.S. crops in 2013 would likely push
prices down to or below the long-term averages of about $4.75 for
corn and $11 for soybeans.
"While the expectation for lower corn and soybean prices in 2013
is reasonable based on historical patterns and prospects for large
crops, the timing and speed of the return to more ‘normal' prices
will be influenced by a large number of factors," Good said. "The
final estimate of the size of the 2012 crops, to be released on
Jan.11, 2013, is one of those factors. For soybeans, the pattern of
2012 yield forecasts to date, lower in September and higher in
October and again in November, was experienced six other times in
the previous 30 years. The yield estimate released in January
following harvest in those six years was above the November forecast
three times and below the forecast three times. The deviation ranged
from 0.1 to 0.8 bushels," Good said.
History does not provide much guidance for forming expectations
this year, Good said.
"For corn, the pattern of yield forecasts this year, lower in
September and October and higher in November, was experienced only
two other times," he said. "The January yield estimate equaled the
November forecast in one of those years and exceeded the November
forecast by 0.7 bushels in the other. Again, history provides little
guidance for forming January yield expectations this year."
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Good said the bigger issue for corn production may be the January
estimate of acreage harvested for grain. There is a general
expectation that the USDA's large December survey may reveal fewer
acres than currently forecast.
"On the supply side, the progress of the South American crops
will be most important for the next three months," Good said.
"Weather conditions are currently improving somewhat from early wet
conditions in Argentina and dry conditions in central and western
Brazil. Some ongoing dryness is noted in southern Brazil and
Paraguay. Some argue that corn production potential has already been
reduced in Argentina. For the near term, markets will likely
continue to reflect expectations of very large crops," he said.
Good commented that prices will also be influenced by the ongoing
rate of consumption of the 2012 U.S. crops. For corn, there is some
anticipation that the pace of export activity, which has been
extremely slow to date, may accelerate as South American supplies
dwindle and Asian customers return to the U.S. market.
"The larger issue, however, surrounds the pace of domestic feed
and residual consumption," Good said. "The USDA's estimate of Dec.
1, 2012, stocks to be released on Jan. 11 will provide some
much-needed clarity to the rate of consumption in the last quarter
of the 2011-12 marketing year and the first quarter of the 2012-13
marketing year. For soybeans, the National Oilseed Processors
Association estimate of the size of the October crush is expected to
be released later this week. That estimate will provide insight into
the pace of crush relative to the projected rate. The pace of new
export sales will also be important, with some concern about
cancellations of earlier purchases by some customers.
"Prospects for further price declines for corn and soybean into
2013 favor pricing more of the old and new crop sooner rather than
later. However, the transition to lower prices will be erratic, so
that timing of sales will still be important. Recent price declines,
particularly for soybeans, seem to be a little excessive given the
amount of production uncertainty," Good said.
[Text from file received
from the University of
Illinois College of Agricultural, Consumer and Environmental