Urbana, Illinois
April 27, 2004
Corn and soybean futures prices spiked to contract highs in
early April, but declined significantly during the past two
weeks illustrating a volatile price pattern as market
participants react and overreact to each piece of new
information.
"I expect this volatile pattern to continue," said Darrel Good,
University of Illinois
Extension Economist.
On the supply side of the equation for corn, Good says the
market will closely monitor weather, weather forecasts, and the
USDA’s weekly report of crop progress and crop conditions.
"In general, the 2004 planting season started early and has
progressed rapidly. Forecasts by the National Weather Service
for May through July paint a picture of generally favorable
prospects for the corn crop. In addition to progress of the
crop, the market will continue to speculate about the magnitude
of planted acreage," he said.
Rapid planting progress has led to speculation that corn acreage
will exceed March intentions. Some report expectations that
acreage will exceed intentions by 2 to 3 million acres.
"The only increase in corn acreage from March intentions to the
final acreage estimates since 1996 was in 2000. The increase
totaled 1.67 million acres and was fully reflected in the USDA’s
June Acreage report. In fact, 2000 was the only year with a
significant increase in corn acreage from March intentions since
1988. Small increases occurred in 1992 and 1994. The market may
be expecting too large a change in corn acreage in 2004," said
Good.
On the demand side, the pace of exports and export sales will be
the primary information available to the market between now and
the release of the June 1 Grain Stocks report on June 30.
As of April 15, accumulated exports since September 1, 2003
totaled 1.205 billion bushels, according to the USDA Export
Sales report. That's 21 percent larger than shipments during the
same period last year. In addition, unshipped sales as of April
15 totaled 380 million bushels, 87 percent larger than
outstanding sales of a year earlier.
"Export commitments, which is shipments plus sales, were 32
percent larger than commitments of a year ago. For the year, the
USDA has projected a 26 percent increase in exports. Shipments
for the final 20 weeks of the marketing year will need to
average nearly 41 million bushels per week to reach the 2
billion bushel projection. Shipments have averaged only 35
million per week over the past 4 weeks and 38 million bushels
per week over the past 8 weeks. New sales need to average only
about 22 million bushels per week to reach the 2 billion bushel
sales level," said Good.
For soybean demand, the market will focus primarily on the pace
of the domestic crush, the magnitude of meal and oil imports,
and estimates of the size of the South American crop.
"The needed adjustment in the pace of U.S. soybean exports and
export sales has been made. The domestic market will not “run
out” of soybeans, but the pace of use does have to slow
considerably," said Good.
Good asks, have end users made the necessary adjustments or will
higher prices be required to stretch available supplies?
"Market opinion is divided, but recent price behavior suggests
that prospects for reduced consumption, increased imports, and
early harvest may be sufficient to meet needs without sharply
higher prices. The size of the South American crop is more
important for prospective demand for the 2004 U.S. crop. Export
sales of the 2004 crop are record large. Two-thirds of those
sales are to China and 20 percent are to 'unknown' destinations
that likely include China," he said.
On the supply side, the market will follow the progress of the
2004 U.S. crop, as well as weather forecasts and weekly reports
of crop conditions.
"There is some expectation that actual plantings will be smaller
than March intentions. However, the switch to corn may be small
and mostly offset by switching some intended cotton acreage to
soybeans. The potential is for a large 2004 U.S. harvest and
increased acreage in South America. Trend yields in both the
U.S. and South America in the year ahead would result in an
abundance of soybeans," said Good.
Good adds that to date the 2003-04 soybean marketing year has
most resembled that of 1976-77 when the small crop of 1976 was
recognized late and the rate of consumption did not slow until
the middle of the marketing year. July 1977 futures peaked at
$10.64 in late April 1977. July 2004 futures peaked at $10.64 in
early April 2004.
"The sharp, rapid price decline of the summer of 1977 is not
expected to be repeated in 2004, but trend yields would result
in lower prices by harvest. Corn prices are expected to remain
well supported, even with good yield prospects. The June 30
Acreage report will be important," he said.
Source: Darrel Good, 217-333-9440,
dgood@uiuc.edu
Contact: Gary Beaumont, 217-333-9440,
Beaumont@uiuc.edu |
