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"Producers may need to maintain some
patience in pricing additional quantities of 2002 crops and 2003
crops until the market has had a chance to react to spring acreage
and weather prospects," said Darrel Good.
Good's comments came as he reviewed the
outlook for the markets in the wake of Jan. 10 USDA reports.
Attention will now focus on prospects for the upcoming Northern
Hemisphere crop season.
"Most of the focus will be on the
United States," he said. "Stocks of U.S. crops are expected to be
adequate, but small, going into the 2003 harvest seasons. The
relatively small inventories mean that the size of the 2003 crops
will have very important price implications."
Good noted that two topics will likely
dominate market conversation this winter -- soil moisture conditions
and planted acreage prospects.
Weather conditions
"Moisture conditions have the most
immediate implications for the winter wheat crop," he said.
"However, lack of precipitation in large parts of the United States
this past fall and so far this winter has triggered early weather
talk for spring-planted crops as well. The Palmer Drought Index
shows that dry conditions are prevalent in much of the Rocky
Mountain States, the upper Plains, Nebraska, and in parts of Kansas,
Iowa, Missouri, northern Illinois, northern Indiana and Michigan.
Dryness is also noted in parts of the Southeast.
"The National Weather Service outlook
for the period February through April projects drier-than-normal
climate across the Ohio Valley, Great Lakes region and the Pacific
Northwest. For the Southeast, the projection is for a dry February
and wetter-than-normal climate in March and April."
Good said that the 90-day forecast is
based, in part, on prospects for a weakening El Nino episode. With
the lack of other significant fundamental developments, weather
conditions may provide a lot of fuel for conversation over the next
two months. For corn and soybeans, current moisture conditions
obviously have little significance. Spring and summer weather will
be an important price factor, as it always is.
Acreage projections
The USDA's winter wheat seedings report
revealed a 2.5-million-acre increase in winter wheat seedings in the
fall of 2002. The increase totaled 700,000 acres in Kansas, 500,000
in Oklahoma, 300,000 in Montana and 200,000 in Texas. The increase
in the eastern Corn Belt totaled 550,000 acres. Seedings declined
about 280,000 acres in the South and Southeast.
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"Part of the increase in winter wheat
seedings may be offset by declines in spring wheat acreage,
depending on relative prices over the next few months," said Good.
"One popular private forecaster has projected a 700,000-acre
decrease in the total of spring and durum acreage in 2003.
"That same firm has projected that U.S.
corn acreage will increase by nearly 2.7 million acres and that
soybean area will decline by 1.1 million acres. That firm believes
that total acreage of corn, soybeans and wheat will increase by 3.35
million acres in 2003. It is not clear how that increase will
occur."
Good noted that a number of factors
will influence the magnitude of total crop land acreage and the mix
of that acreage by crop in 2003. These include the extent of weather
damage to winter wheat, relative prices of spring-planted crops and
spring weather conditions. The USDA will release the results of its
"Prospective Plantings" survey on March 31.
Price levels
"Corn and soybean prices appear to have
established support levels following the price declines immediately
after the Jan. 10 USDA reports," said Good. "July corn futures have
found support near $2.35. It is probably important for the rate of
corn export sales to increase if that support level is to hold. The
early January high just above $2.50 may be difficult to penetrate
prior to spring. More volatility is likely from March forward, as
spring-summer weather conditions unfold."
Good said the soybean market remains
inverted, with March futures finding support near $5.44 and July
futures finding support near $5.35.
"A high rate of export sales continues
to provide fundamental support for soybean prices, but the absence
of significant problems in South America tends to keep a lid on
prices," said Good. "March and July futures traded to $5.85 and
$5.74, respectively, in early January.
"It may be
difficult to challenge those levels if South American conditions
remain favorable. There is some conversation about potential disease
problems in the wetter areas of Brazil."
[U
of I news release]
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"Until more is known about the 2003
crops, a significant rally in prices is not expected," said Darrel
Good, reacting to USDA reports that apparently triggered a sharp
drop in prices of major crops on Jan. 10.
"Prices moved generally higher in front
of the reports, apparently expecting some supportive news in the
reports," he said. "Instead, the reports generally showed a
combination of larger supply estimates, smaller projections of
consumption and larger projections of year-ending stocks."
Corn
For corn, the estimate of the 2002 U.S.
crop came in at 9.008 billion bushels, essentially unchanged from
the November projection. Planted acreage of corn in 2002, at 79.054
million, was 793,000 larger than projected in November. Acreage
harvested for grain, however, was 1.228 million less than previously
projected, as abandoned acreage was larger than normal. The U.S.
average yield was estimated at 130 bushels per acre, 2.4 bushels
above the November projection.
"At 7.633 billion bushels, stocks of
corn on Dec. 1, 2002, were 632 million less than on the same date
last year and the smallest in five years," said Good. "However, the
implied level of feed and residual use of corn during the first
quarter of the marketing year was 130 million bushels, or 5.9
percent, less than during the same quarter last year.
"As a result, the USDA lowered the
projection of feed and residual use for the current marketing year
by 75 million bushels, to a total of 5.6 billion. That projection is
4.7 percent less than feed and residual use of a year ago and
implies that use will be down only 3.9 percent during the last three
quarters of the year."
The projection of domestic processing
use of corn was increased by 45 million bushels, to a total of 2.245
billion. The expected 9.3 percent increase over last year's use
reflects increased ethanol production. U.S. corn exports during the
current marketing year are now projected at only 1.85 billion
bushels, 50 million less than projected last month and 39 million
less than exported last year.
Year-ending stocks are projected at 924
million bushels, 81 million above last month's projection. The
projection of world inventories of all coarse grains was also
increased, reflecting smaller consumption projections for Japan,
Mexico, South Korea and China. The season's average price is
projected in a range of $2.15 to $2.55, 5 cents below last month's
projection.
Soybeans
For soybeans, the final estimate of the
2002 U.S. crop, at 2.73 billion bushels, was 40 million larger than
the November projection. Planted acreage was 765,000 larger than
previously estimated, and harvested acreage was 361,000 larger. In
addition, the January yield estimate of 37.8 bushels per acre was
0.3 bushels above the November projection.
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"The larger U.S. crop estimate was
matched with a 37-million-bushel increase in the projected size of
the Argentine crop," said Good. "At 3.167 billion bushels, the 2003
South American crop is expected to be 12.5 percent larger than the
2002 crop, reflecting a 9.5 percent increase in acreage. Stocks of
soybeans in the U.S. on Dec. 1, 2002, were estimated at 2.115
billion bushels, 161 million less than on the same date last year."
The projection of the U.S. soybean
crush for the current year was reduced by five million bushels, but
the projection of exports was increased by 30 million bushels. The
net effect of the changes in production estimates and consumption
projections was a 15-million-bushel increase in the projected level
of year-ending stocks in the United States. The midpoint of the
USDA's projection of marketing year average price remained at $5.45.
Wheat
Stocks of wheat in the United States on
Dec. 1, 2002, totaled 1.321 billion bushels, 302 million less than
on the same date last year.
"Even so, stocks were larger than
expected, forcing the USDA to lower the projection of feed and
residual use of wheat for the current marketing year by 50 million
bushels," said Good. "The projection of marketing year exports was
reduced by 25 million bushels, and the projection of year-ending
stocks was increased by 70 million bushels. The projection of the
marketing year average farm price is now in a range of $3.50 to
$3.80, 15 cents less than projected last month.
"The one positive piece of information
in the USDA reports was the estimate of U.S. winter wheat seedings.
At 44.246 million acres, the estimate is 2.511 million, or 6
percent, larger than seedings of a year ago but less than
anticipated by the market."
Prospects
With the major USDA reports now
reflected in the market, price direction will now be determined by
the rate of consumption and prospects for 2003 crops. Reports from
South America generally reflect favorable growing conditions for
both corn and soybeans, although some concern about potential
soybean disease has been noted. The projected size of the Brazilian
corn crop was increased by nearly 40 million bushels, and many
private analysts believe the Argentine crop could be larger than
currently projected.
"In the
United States, dry conditions are still impacting the winter wheat
crop in some areas, but the main focus will be on the intended
acreage of spring-planted crops," said Good. "The first look at
acreage will be available with the USDA's Prospective Plantings
report released on March 31. The market currently expects an
increase in corn acreage and a decrease in soybean acreage."
[U
of I news release]
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