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"The modest strength in corn prices
that occurred in the first half of May appears to have been driven
by concerns about planting delays and a one-day BSE reaction," Good
said.
According to the USDA, domestic
consumption of corn for ethanol production continues at a record
pace, but the pace of exports remains very slow. Based on the USDA's
report on export sales, cumulative shipments of U.S. corn through
May 15 totaled only 1.1 billion bushels, 14 percent less than
cumulative shipments of a year ago.
"That pace of shipments is in line with
the USDA's projection of a 14 percent decline in exports for the
year. To reach the projection of 1.625 billion bushels for the year,
shipments between now and the end of August need to average 34.8
million bushels per week. The average rate of shipments to date is
30 million bushels per week," Good said.
Good says old crop corn supplies should
be fully adequate to meet consumption needs until the new crop is
harvested. However, the relative strength in old crop corn futures
and the ongoing strength in the corn basis in many areas would
indicate some tightness in old crop stocks or at least reluctance of
producers to sell old crop stocks.
"There may be a little more interest in
the June 1 stocks estimate, to be released on June 30, than is
typically the case. The market now believes that most of the U.S.
corn crop will be planted before June 1, moderating some of the
concerns about the potential negative yield impacts of late
planting," he said.
July 2003 soybean futures traded to a
contract high of $6.58 last week, moved below $6.20 early in the
season on May 27 and then closed near $6.30. Technically, that
contract has the potential to drop back to the $5.90 area, but such
a decline near-term would require a confirmation of a sharp
reduction in exports and favorable crop conditions.
"The increase in soybean prices over
the past two months was driven primarily by a rapid rate of U.S.
exports in an environment of relatively small inventories. Some
concerns about delayed planting provided additional support for the
past two weeks. Prices also got a sharp, one-day boost from news of
BSE in Canada. The strong price reaction stemmed from ideas that
soybean meal feeding would increase if restrictions were placed on
bone meal feeding. All of these price-supporting factors now appear
to be dissipating to some degree," Good said.
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top of second column in this article]
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Large U.S. soybean exports this spring
reflected large shipments to China and delay in movement of South
American soybeans to the export market due to a combination of some
harvest delays and changing currency values.
As of May 15, China had imported 278
million bushels of U.S. soybeans, nearly 80 percent more than
imported a year ago. However, there were no outstanding sales of old
crop U.S. soybeans to China as of May 15. China has bought about
four million bushels of U.S. soybeans for shipment during the
2003-04 marketing year.
Shipments of U.S. soybeans to all
destinations moved back above 10 million bushels for the week ending
May 22 after dropping below four million bushels the previous week.
Shipments between now and the end of August need to average only 4.1
million bushels per week to reach the official USDA projection of
1.01 billion bushels and five million per week to reach the
unofficial projection of 1.023 million bushels.
"U.S. soybean exports have not yet
rolled over and died. In combination with the slowdown in the
domestic crush of soybeans, a slower export pace would suggest that
U.S. supplies will be sufficient to meet consumption needs until the
new crop is harvested. That slower pattern, however, has not yet
materialized," Good said.
The recent pattern of more favorable
planting weather has removed some of the concern about the potential
adverse yield effects of late soybean planting. While the planting
pace is running behind the average pace, significant delays may be
limited.
"Longer term, both corn and soybean
prices could continue to be quite volatile, with U.S. production
prospects being the dominant factor. The most important part of the
production season is still to come," Good said.
Good says that in addition to uncertain
yields there is also some uncertainty about the magnitude of planted
acreage of corn and soybeans. The USDA will provide an update in the
June report on acreage. With generally timely planting, the June
report should provide a fairly accurate estimate of planted acreage.
Summer weather concerns could provide additional pricing
opportunities for producers.
"The pattern
being demonstrated again this year is that weather and crop concerns
tend to provide only brief periods of higher prices. Crop-damaging
weather is required to push prices to sharply higher levels for a
prolonged period," Good said.
[University
of Illinois news release]
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"There does not appear to be a strong
justification for farmers adopting portfolios with a large number of
advisory services," said Scott Irwin, U of I professor of
agricultural marketing and one of the authors of the study. "Farmers
may well choose portfolios with as few as two or three programs,
since the relatively high subscription costs associated with larger
portfolios can be avoided while obtaining most of the benefits from
diversification."
The study, "Portfolios of Agricultural
Market Advisory Services: How Much Diversification is Enough?" was
produced by the AgMAS Project and authored by Irwin and Darrel Good,
also a professor in the Department of Agricultural and Consumer
Economics; along with Brian G. Stark, a former graduate research
assistant; Silvina M. Cabrini, a current graduate research
assistant; and Joao Martines-Filho, manager of the AgMAS Project.
The complete report is available online at
http://www.farmdoc.uiuc.edu/
agmas/reports/index.html.
Funding support for the study and the
AgMAS Project, which monitors the performance of agricultural market
advisory services, comes from the USDA's Cooperative State Research,
Education and Extension Service, the American Farm Bureau Foundation
for Agriculture, and the Illinois Council on Food and Agricultural
Research.
"Risk management is one of the most
important areas in farm management," explained Irwin. "Professional
market advisory services can be an important source of information
in efforts to manage price risk."
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this article]
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For a subscription fee, these services
offer specific advice to farmers on how to market their commodities.
For several years, the AgMAS Project has monitored and evaluated
about 25 advisory services each crop year.
"When both average price and risk are
considered, only a small fraction of services for corn and a
moderate fraction for soybeans outperform market benchmarks," said
Irwin. "On the other hand, a majority of the services outperformed a
farmer benchmark for both crops."
These studies, however, examined market
advisory services only on a stand-alone basis against benchmark
prices. Some economists believe that a combination of market
advisory services may have greater risk-return benefits than using
only one. The U of I study employed economic analysis tools to
examine this assertion.
Irwin said the study indicated that the
risk reduction benefits of diversification among advisory services
is relatively small compared with the results obtained in previous
studies of stock portfolios.
"This is
mainly because agricultural advisory prices, on average, are highly
correlated," he said. "Our study found that most risk reduction
benefits are achieved with small portfolios. There does not appear
to be strong justification for farmers adopting portfolios with a
large number of advisory services."
[University
of Illinois news release]
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