Urbana, Illinois
Decmber 8, 2008
The ability of the stock market to
close higher on Dec. 5 following poor economic news is a little
encouraging for crop prices, said a University of
Illinois Extension marketing specialist.
"Recessionary pressures will likely continue, but the
biggest impact on crop prices may have already occurred," said
Darrel Good.
Good's comments came as he reviewed corn, soybean, and wheat
prices, all of which continue to be pressured by negative
economic news.
"Confirmation that the unemployment rate continued to increase
in November and crude oil prices were near $40 per barrel pushed
cash corn prices to the lowest level in more than two years and
soybean prices to the lowest level in about a year and a half,"
he said. "The cash price of soft red winter wheat dropped to a
two and one-half year low."
Specific demand indicators for corn and soybeans remain mixed,
he added.
"There was rare good news for corn demand last week," he said.
"From Dec. 2 through Dec. 4, the USDA announced export sales to
Mexico totaling about 23 million bushels, with most to be
delivered during the current marketing year.
"The Chinese government announced that it would buy an
additional 200 million bushels of corn for the strategic
reserve. Export sales of corn to destinations other than Mexico,
however, remain very soft."
For the week ended Nov. 27, the USDA reported new sales to all
destinations totaled only 15.2 million bushels. New sales over
the past six reporting weeks averaged only 16.2 million bushels.
To reach the USDA projection of 1.9 billion bushels for the
year, new sales need to average about 29.5 million bushels per
week for the remaining three quarters of the marketing year.
"Corn demand is also receiving some modest support from ethanol
prices which have not declined nearly as rapidly as corn
prices," Good added. "The average price of ethanol at Iowa
plants was quoted at $1.48 per gallon on Dec. 5. The price at
those locations is about 20 cents lower than in mid-October,
while wholesale gasoline prices have declined by about 70 cents.
"Prospects for hog prices to maintain 2008 levels in 2009 are
also slightly supportive for feed demand. That optimism is
partly offset by weakness in cattle prices and general pessimism
about meat demand if economic performance continues to weaken."
The USDA will update world production and consumption forecasts
on Dec. 11. The projection of use and year-ending stocks of U.S.
corn will not only be important for the current marketing year,
but have implications for the amount of corn acreage that may be
needed in 2009.
"The current projection of year-ending stocks and ideas that
consumption will likely increase in the 2009-10 marketing year
has suggested the need to increase corn plantings by for to five
million acres in 2009," he said. "A slower rate of use and
larger ending stocks would imply that a smaller increase will be
needed."
For soybeans, China continues to aggressively buy U.S. soybeans,
but the overall sales pace slowed during the most recent
reporting week. New sales for the week ended Nov. 27 totaled
only 13.2 million bushels, following an average of about 29
million during the previous two weeks.
"The USDA will release a new forecast of the likely size of the
2009 South American crop on Dec. 11," said Good. "That forecast
will have some implications for likely competition for U.S.
soybeans in the export market during the last half of the
marketing year.
"Reports on Dec. 11 will also contain updated projections for
the 2008-09 marketing year ending stocks in the United States.
The level of those stocks will have implications for soybean
acreage requirements in the United States in 2009. Stocks over
200 million bushels and a return to a trend yield in 2009 would
warrant a 1.5 to 2 million acre reduction in U.S. soybean
acreage in 2009."
For U.S. wheat, prospects of a larger crop estimate for Russia,
a stronger U.S. dollar, and a lower export tax in Argentina all
point toward weakening export demand. The USDA will report
winter wheat seedings on Jan. 12, 2009.
"Seedings of soft red winter wheat are expected to be down
following the sharp increase in 2007," Good said. "A decline in
soft red winter wheat production in 2009 would allow some
reduction in the large inventory expected for the end of the
current marketing year."
By Bob Sampson, University of
Illinois |
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