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"The spring and summer of 2007 could bring more than the usual
amount of price volatility as planting intentions are revealed
and growing conditions unfold," said Darrel Good. "Production
problems and higher prices would spur the debate about the
subsidies provided for biofuels." Good's comments came as he
reviewed the changing structure of corn prices.
"As the rapid pace of construction of ethanol plants
unfolded, it was generally believed that corn supplies would be
adequate for the current marketing year," he said. "Concerns
about supply shortages centered on the 2007-08 marketing year
and beyond.
"Thoughts of current abundance and potential future shortages
if production did not expand rapidly resulted in a large carry
in the corn futures market."
On Sept. 13, for example, July 2007 futures prices were about
31 cents above the price of the December 2006 contract. December
2007 futures were 47 cents above December 2006; December 2008
futures were 15 cents above December 2007; and December 2009
futures, at $3.10, were 10 cents above December 2008.
At the close of trade on Nov. 17, July 2007 futures were only
20.75 cents above December 2006 futures; December 2007 futures
were 15.5 cents below 2006; December 2008 futures were 17.75
cents below December 2007; and December 2009 futures, at $3.19,
were 3 cents below December 2008.
"The spread from December 2006 futures to December 2009
futures went from 72 cents on Sept. 13 to minus 36.25 cents on
Nov. 17, a decline of $1.0825," said Good. "The change reflected
sharply higher prices in nearby contracts and more modest
increases in deferred contracts."
The changing structure of the corn market reflects a much
tighter supply-and-consumption balance for the current year than
anticipated in mid-September, he noted.
Sept. 1 inventories of old-crop U.S. corn totaled only 1.971
billion bushels, 41 million less than forecast in mid-September.
The 2006 harvest is now estimated at 10.745 billion bushels, 369
million below the September forecast. The supply of U.S. corn
for the current marketing year is 410 million bushels less than
that projected two months ago.
"In addition, foreign wheat production this year is now
expected to be 350 million bushels less than projected in
September," he said.
While the Chinese corn crop is now expected to be nearly 200
million bushels larger than forecast in September, larger
Chinese exports are not expected.
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 "Harvest delays, domestic consumption and escalating domestic
prices have led to speculation that some Chinese export sales may be
repurchased," Good said. "Argentina also announced a suspension of
export sales, due to a surprisingly high level of export sales
already on the books.
"Export sales of U.S. corn continue at a rapid pace, led by sales
to Japan. Unshipped sales of U.S. corn to Japan as of Nov. 9 were
reported at 164 million bushels, compared to only 85 million bushels
on the same date last year."
Mexico, Taiwan and South Korea have also bought more U.S. corn
than at this time a year ago, he added. Columbia has purchased a
substantial amount, 49 million bushels, of U.S. corn. Purchases by
corn importers have likely been accelerated as concerns about
available supplies increase.
"While concerns about tight supplies for the current year have
increased, there appears to be a little less concern about next
year," said Good. "It is expected that the high wheat prices will
result in a substantial increase in world wheat production in the
year ahead, resulting in a rebound in wheat feeding at the expense
of corn.
"Domestically, higher corn prices will likely result in a slowing
of feed consumption. In addition, higher corn prices, lower crude
oil prices and some construction delays may slow the expansion in
construction of new ethanol plants. An increase in U.S. corn acreage
is also anticipated for the year ahead. The favorable price of corn
in relation to soybeans is expected to spur most of the increase."
Reports that seedings of soft red winter wheat fell short of
intentions due to unfavorable weather suggest a little more acreage
available for spring-planted crops, including corn. Most agree,
however, that a substantial increase in corn acreage is needed to
keep corn prices at "reasonable" levels for users.
"There is little historical experience to guide expectations of
how producers will respond," Good noted.
In general, he added, corn price prospects remain very unsettled
as domestic and world market conditions change.
"The price of corn, along with the price of other crops, will
have to be high enough to encourage the planting of all available
crop land area in the United States and perhaps to bring some land
currently in the Conservation Reserve Program back into crop
production as contracts expire," he said.
"Corn prices will have to be high enough in relation to the price
of other crops in order to direct a higher percentage of U.S. crop
land into corn production."
[University
of Illinois College of Agricultural, Consumer and Environmental
Sciences news release]
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