Urbana, Illinois
July 21, 2008
Corn and soybean prices continue
to weaken, but could settle into a more "sideways" pattern as
production prospects unfold, said a University of
Illinois Extension marketing specialist.
"Still, large daily price movements can be expected," said
Darrel Good.
Good's comments came as he reviewed recent corn and soybean
price patterns. December 2008 corn futures increased about $2
per bushel during the month of June, topping out just under $8.
During the same period, November 2008 soybean futures rallied
more than $3, topping out just under $16.37.
"Much of the June rally was related to weather conditions in the
United States as excessive rainfall threatened acreage and yield
in a wide area over the Midwest," he said. "That weather pattern
followed a generally wet, cool May that resulted in late
planting and slow emergence in some areas.
"Soybean prices were also supported by a generally strong export
pace."
USDA export estimates indicate that soybean exports during June
totaled about 57 million bushels, compared to about 45 million
in June 2007. Continued strong demand by China and interruptions
in exports from Argentina contributed to the large June exports.
"Prices of both crops turned lower in July," Good noted. "Corn
prices have been pressured by a combination of
larger-than-expected acreage estimates released by the USDA on
June 30, improving crop conditions, and lower crude oil prices.
"As of July 13, the USDA estimated that 64 percent of the corn
crop was in good or excellent condition, equal to the rating of
a year ago. Lower crude oil prices have resulted in lower prices
for ethanol. The average price of ethanol at Iowa plants
declined from $2.82 per gallon on July 3 to $2.57 per gallon on
July 18. At the close of overnight trade on July 21, December
2008 corn futures settled $1.74 below the contract high."
Good said that soybean prices have not declined as sharply as
corn prices.
"While December 2008 futures are down by more than 20 percent
from the contract high, November 2008 soybean futures at $14.40
are down 12 percent from the contract high," he said. "Soybean
prices have been a little more resilient because of the
uncertainty about Argentine exports and because of more concern
about U.S. crop conditions.
"As of July 13, the USDA estimated that 59 percent of the U.S.
crop was in good or excellent condition, compared to 62 percent
in those categories a year earlier. While crop condition ratings
are not much different than is typical for this time of year,
the lateness of the crop and continuing dry weather in the Delta
has created uncertainty about production prospects."
The same factors that have been contributing to the extreme
price moves of the past four months will continue to be
important for corn and soybean prices for the next two months,
he added.
"On the demand side, there are indications that Argentine export
activity could return to a more normal state and U.S. soybean
exports have slowed in July," he said. "After adjusting for
larger Census Bureau estimates compared to USDA estimates,
shipments during the last 6.5 weeks of the marketing year will
need to average 10 million bushels per week to reach the USDA
forecast of 1.145 billion for the year.
"The average over the three weeks ended July 17 was 7.7 million,
although the estimate for the week ended July 17 is subject to
revision."
For corn, the drop in ethanol prices over the past two weeks has
been more than offset by the decline in corn prices, he noted.
"Spot cash prices for corn, ethanol, and distillers grain
suggest that the current gross crush margin is at the high end
of the margins experienced over the past 11 months," he said.
"Corn consumption for ethanol should continue to increase as
forecast as corn prices follow crude oil prices."
At the top of the list of price factors is the production
potential of the 2008 U.S. crops. While crop ratings generally
support yield prospects at or above trend values, the lateness
of the crop will be a lingering concern.
As of July 13, only 13 percent of the corn crop was in the silk
stage, compared to 50 percent on the same late last year and the
five-year average of 36 percent.
"Recent weather conditions, however, suggest that maturity will
progress rapidly," he said. "In addition, the Climate Prediction
Center (CPC) outlook for August weather contained a generally
favorable outlook for the Midwest.
"As of July 13, 26 percent of the soybean crop was reported to
be in the bloom stage, compared to 54 percent on the same date
last year and the five-year average of 45 percent."
Another concern going forward is the generally dry pattern in
the Delta and Southeast and the CPC forecast of above-average
temperatures for that region in August. Rain chances for that
area in the near term are improving, depending to some extent on
hurricane activity.
"While yield uncertainty will persist, there is more than the
typical amount of uncertainty about corn and soybean acreage,"
Good said. "The USDA will provide updated forecasts of planted
and harvested acreage, along with the first yield forecast of
the season, on Aug. 12."
By Bob Sampson, University of
Illinois |
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