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"The market will closely
monitor the USDA's weekly reports of crop progress and crop
conditions to assess yield potential of the 2004 corn and soybean
crops," said Darrel Good. "For corn, progress is well ahead of
normal in many areas with tasseling well under way for the early
planted crops.
"Some concern about yield
potential stems from areas of excessive precipitation and a period
of below-normal temperatures. In addition, of course, the most
critical part of the growing season is now unfolding."
Good added that for soybeans
the most uncertainty about yield potential currently stems from the
impact of too much precipitation in some areas.
For both corn and soybeans, the
market will have a significant interest in the USDA's June 30
"Acreage" report. In March, the USDA reported producer intentions to
plant 79.004 million acres of corn and 75.411 million acres of
soybeans.
"There has been a general
expectation that corn area exceeded March intentions and that
soybean acreage fell short of intentions," said Good. "It is argued
that early planting and a spike in corn prices above $3 drove the
shift towards more corn. One prominent private firm has reportedly
estimated that corn acreage exceeds March intentions by 2 million
acres and soybean plantings are 1 million acres below March
intentions. Such large shifts, particularly in corn acreage, have
been rare."
In addition to uncertainty
about planted acreage, the market will debate the magnitude of
acreage lost to flooding and ponding, Good noted. Until the August
"Crop Production" report, the USDA will rely on producer reports of
acreage to be harvested. Flooded areas will reduce harvested
acreage, while ponded areas could influence either yield or
harvested acreage estimates, or a combination of the two.
On June 30, the USDA will also
release the June "Grain Stocks" report.
"This report will contain an
estimate of stocks of corn and soybeans as of June 1," said Good.
"Estimates for both corn and soybeans will be important due to the
relative tightness of stocks. However, there is particular interest
in the estimate of soybean stocks for at least two reasons.
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"First is the extreme tightness
of stocks and indications that the pace of the domestic crush has
not yet slowed enough to stretch old-crop supplies until harvest.
Second, the March 1 estimate of soybean stocks was larger than
expected, implying an unusually low level of 'residual' use of
soybeans during the first half of the 2003-04 marketing year. That
surprise raised questions about the actual size of the 2003 crop."
Good added that the Census
Bureau estimates of soybean exports in March and April were well
above the USDA estimates, adding more uncertainty about the actual
rate of consumption. The June 1 stocks estimate will give a clearer
picture of the rate of use and provide additional evidence about the
actual size of the 2003 crop.
"More importantly, the estimate
will reveal the extent of the needed reduction in domestic
processing use of soybeans for the rest of the summer," Good said.
Perceptions that current
conditions point to a large 2004 U.S. corn crop, along with the
recent slowdown in the pace of export shipments, have resulted in a
significant decline in December 2004 futures prices. That contract
traded to the $3.40 level in early April, about $1 above the low in
December 2003, but traded to $2.76 on June 21.
"For the next few weeks, the
crop condition reports should continue to reflect a high percentage
of the crop in the good or excellent categories," said Good. "It
also appears that much of the crop will reach the pollination stage
under generally favorable conditions.
"Such a scenario leaves only
the June 30 "Acreage" report as a possible source of a near-term
recovery in prices. A failure of that report to show the expected
increase in acreage would be a reminder of the ongoing tightness in
U.S. and world grain inventories and provide the basis for reversing
the current trend of lower prices."
November 2004 soybean futures
peaked near $8 in late March and again in early April, about $2.60
above the lows in September 2003, but traded near $6.50 last week.
"With so much of the growing season remaining, uncertainty about
crop size will continue to provide some opportunity for price
recovery," said Good. "Targets for that recovery, however, are
generally well below the levels of early May."
[University
of Illinois news release]
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