 "December 2007 futures above $3.90, however, might require some
new fundamental information," said Darrel Good. "On the supply
side, the new USDA production forecast to be released on Nov. 9
will be important."Good's comments came as he reviewed corn
prices. Cash corn prices in some markets are at the highest
level for the marketing year that began on Sept. 1. The recent
strength reflects higher futures prices and a stronger basis.
The average cash corn price in central Illinois briefly
dipped below $3 in mid-September and was just above $3 on Oct.
8. That average, however, was at $3.47 on Oct. 26. Since
reaching a low of about $3.35 in early October, December 2007
corn futures settled at $3.72 on Oct. 26.
"The average basis in central Illinois was extremely weak in
the pre-harvest and early harvest period, with cash bids on
Sept. 20 averaging about 50 cents under December futures," said
Good. "The weak basis pattern was widespread throughout the
Midwest. On Oct. 26, the average central Illinois cash bid was
25 cents under December futures -- very close to a 'normal'
level.
"Higher futures prices and a stronger basis have developed
despite an extremely large crop, the need for corn to be stored
in temporary facilities and high transportation costs. The
strength reflects a continuation of strong export demand, higher
energy costs, concerns about U.S. acreage in 2008 and a slowdown
in the rate of farmer selling of the newly harvested crop."
Additionally, he noted, storage shortages may not have been
as severe as generally expected.
"In Illinois, for example, the fall supply of crops -- Sept.
1 stocks plus 2007 production -- totaled about 3 billion
bushels," said Good. "If storage capacity in 2007 was added at
the same rate as in 2006, total capacity was about 350 million
bushels less than the fall crop supply. That compares to a
storage deficit of about 380 million bushels in 2004.
"Nationally, storage capacity was surplus by about 400
million bushels, assuming storage capacity was added in 2007 at
the same rate as in 2006."
The pace of U.S. corn exports during the first eight weeks of
the 2007-08 marketing year has been similar to that of a year
ago. Cumulative export inspections through Oct. 25 totaled 345
million bushels, compared with 344 million during the first
eight weeks of the 2006-07 marketing year.
"However, unshipped export sales as of Oct. 28 were reported
at 765 million bushels, compared to sales of only 425 million of
a year ago," Good noted. "The demand for U.S. corn is being
supported by less competition from Chinese corn, smaller world
supplies of feed wheat and a generally weak U.S. dollar.
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"Exports are expected to remain strong through the winter months,
although the recent pace of sales, averaging 69 million bushels per
week from Sept. 12 through Oct. 18, cannot be sustained. In
addition, a rebound in world wheat production would soften the
demand for U.S. corn next summer."
High energy prices, particularly crude oil prices, have raised
expectations about ethanol demand and prices. The average price of
ethanol at Iowa plants was well over $2 per gallon in the spring of
2007 but declined to about $1.50 in late September and early
October.
"The low ethanol price, along with the recent increase in corn
prices, pushed ethanol crush margins to very low levels," said Good.
"Using total estimated cost of production, margins were negative for
some producers. Ethanol prices have increased about 10 cents per
gallon over the past 10 days. Further increases would keep operating
margins for existing plants well in the black, supporting the
domestic demand for corn."
Concerns that corn acreage could decline in the United States in
2008 stem from the rising costs of corn production, high soybean
prices and ideas that winter wheat acreage has been increased. At
this juncture, it is not clear how many acres of corn are needed in
2008.
"That calculation is a function of expectations about average
yield, the level of year-ending stocks of the 2007 crop and
expectations about the size of the U.S. corn market in 2008-09,"
said Good. "However, with December corn futures well over $4 per
bushel, corn production in much of the Midwest is potentially more
profitable than soybean production at the current level of 2008-09
marketing year soybean prices."
If basis levels continue at more normal levels during the
remainder of the marketing year, the market is currently offering
about 35 cents per bushel in the form of basis improvement to store
corn into the spring of 2008.
"Stored corn that is hedged or sold on a hedged-to-arrive
contract will likely continue to earn a positive net return," said
Good.
[Text from file received
from the University
of Illinois College of Agricultural, Consumer and Environmental
Sciences]
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