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"The size of Chinese crops, the
magnitude of planted acreage in South America, and the magnitude of
Chinese corn exports and soybeans and soybean oil imports are among
the important developments that could influence corn and soybean
prices," said Darrel Good. "Positive demand factors in the face of
large U.S. crops will not likely be sufficient to produce
significant price rallies but can certainly temper the negative
price impact of large crops.
"U.S. and world grain and oilseed
inventories are small enough that prices will remain volatile and
trade in wide ranges, as has been the case for the past 30 years. In
addition, the higher prices that have been experienced over the past
year may not quickly give way to the low prices that persisted from
July 1998 through June 2002."
Good's comments came as he reviewed the
price outlook for 2003 corn and soybean crops.
"The 2003 U.S. planting season and
early part of the growing season for corn and soybeans were less
than perfect," he said. "This is reflected in low crop condition
ratings for Indiana, Kansas, Kentucky, Louisiana, Michigan, North
Carolina, Ohio, Pennsylvania and Texas. In addition, parts of other
states -- southern Illinois, for example -- have low crop ratings."
Wet weather likely resulted in
relatively large prevented plantings in some areas. Nationwide,
however, the USDA crop condition ratings for the week ended June 15
showed both the corn and soybean crops in much better condition than
on the same date last year. With 71 percent of the corn crop and 68
percent of the soybean crop rated in good or excellent condition,
yield prospects remained good at midmonth.
Good noted that the National Weather
Service forecast for the period June 28 through July 2 indicated
prospects for normal temperatures in most of the corn and soybean
growing areas. That same forecast indicated prospects for below
normal precipitation for an area running from Michigan through
eastern Texas that includes much of Illinois, Indiana and Missouri.
The forecast for the month of July,
released on June 19, indicated prospects for normal or below normal
temperatures and normal to above normal precipitation for
essentially all of the corn and soybean producing areas. Finally,
the 90-day forecast through September indicated normal temperatures
and precipitation for all production areas.
[to top of second column in
this article]
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"As the saying goes, 'it is not over
until it is over'; adverse weather events could occur," said Good.
"However, the current forecast suggests reasonable chances for at
least trend-line corn and soybean yields in 2003. Yields above trend
may be more likely than yields below trend."
U.S. weather, crop conditions and yield
prospects are clearly important factors for corn and soybean prices
at this time of year, Good added.
"However, other factors do and will
influence prices," he said. "As mentioned in the last column, the
USDA's June 1 grain stocks and acreage reports will contain
important information for both the supply and demand side of the
markets. The June 1 stocks estimates will provide solid information
about the rate of consumption. The acreage report will shed some
light on the magnitude of prevented plantings, acreage shifts and
March survey sampling errors.
"One popular private analyst expects
the June report to reveal less spring wheat and cotton acreage, more
corn and soybean acreage, and more total acreage than indicated in
the March prospective plantings report.
"The higher prices for November 2003
soybean futures that have developed since May, along with a strong
harvest-time basis in many areas, offer producers an opportunity to
implement pre-harvest pricing strategies for a portion of the crop.
The strong basis and lack of carry in the new crop futures market
discourages plans to store the 2003 crop. In addition, the old
crop-new crop price inversion results in the possibility of a
substantial premium for early harvested soybeans.
"A strategy of spreading sales of new
crop soybeans during the critical growing season appears to have
merit," said Good. "A large U.S. crop has the potential for
eventually pushing new crop prices below the Commodity Credit
Corporation loan rate. Upside potential for November 2003 futures
include the contract high of $5.88 and highs for the 2000 through
2002 contracts ranging from $5.91 to $6.30."
The price pattern for December 2003
corn futures has been sideways, in a relatively narrow range, since
October 2002, Good noted.
"A strategy
of spreading some new crop sales over the next six weeks also has
merit," he said. "New crop prices are above the loan rate, and the
harvest basis is generally strong. The relatively small carry in the
new crop futures market also provides little reward for storage of
the 2003 crop."
[University
of Illinois news release]
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