Urbana, Illinois
June 16, 2008
Although there is considerable
uncertainty about acreage, yield, and production for the 2008
corn crop, favorable weather conditions through September could
still result in a "respectable" crop, said a University of
Illinois Extension marketing specialist.
"There is an interesting dynamic in livestock prices,"
added Darrel Good. "As the market expects liquidation and lower
production, futures prices have moved sharply higher. Cattle
futures prices range from $105 to $118 for the period from
August 2008 through October 2009.
"Lean hog futures, in live weight equivalents, range from $56.50
to $71.50 for that same period. As feed prices moderate
somewhat, will these high futures prices actually encourage
continued production rather than liquidation similar to the
experience of 1995-96?"
Good's comments came as he reviewed the trajectory of corn
prices, which moved sharply higher in the first half of June as
excessive precipitation threatened both acreage and yield. July
2008 futures rallied from about $6 to a high of $7.60, while
December 2008 futures moved from $6.25 to a high of $7.915.
"As suggested last week, prices have moderated slightly from
those highs as weather conditions have improved," he said. "The
USDA announced that it will conduct follow-up surveys in some
states to supplement previous data collected for the June 30
Acreage report.
"In addition, a more comprehensive survey will be conducted in
July with the results to be incorporated into the wide range.
Most believe planted acreage will be below that indicated in the
March Prospective Plantings report. Others believe that planted
acreage will exceed March intentions as producers responded to
the sharp price rise following the intentions report in March."
Acreage harvested for grain will be difficult to anticipate
prior to the USDA's August crop report, he added.
Good said there are also indications that the rate of corn
feeding may be on the decline. In May, the number of cattle
placed into feedlots with a capacity of 1,000 head or more was
12 percent smaller than placements during May 2007.
"The number of cattle on feed in those lots on June 1 was 4
percent smaller than the number a year earlier," he said. "There
also has been discussion that the last leg up in corn prices
will result in renewed liquidation in the hog sector. In
addition, wheat has become attractively priced relative to corn
for feeding this summer."
The rate of corn exports also has slowed. USDA reports
cumulative marketing year export inspections through June 19 at
1.95 billion bushels. To reach the projection of 2.45 billion
for the year, inspections need to average 47.8 million bushels
per week for the last 10.4 weeks of the marketing year.
Inspections have averaged only 39.2 million per week for the
last five weeks, with a high of 42.1 million.
Adjusting cumulative USDA inspection data to Census Bureau data
(Census exports through April exceeding inspections by 53
million bushels) shipments still need to average 43 million
bushels per week during the last 10.4 weeks of the year to reach
the USDA projection.
"Finally, there are numerous reports of a slowdown in ethanol
production," Good said. "These reports range from a slowdown in
construction of new plants to the closing of existing plants.
These reports appear to be at odds with general indicators of
ethanol profitability.
"Spot prices of ethanol have increased nearly 50 cents per
gallon over the past two weeks, spot prices of distillers grains
jumped significantly last week, and calculated spot processing
margins are solidly in the black even with higher natural gas
prices. There is obviously a disconnect between profitability
indicated by spot prices and actual net margins at some plants."
On July 11, the USDA's World Agricultural Outlook Board will
release new projections of use for the current year as well as
new forecasts of production and consumption for the 2008-09
marketing year. The projection of stocks at the end of the
current marketing year will likely be increased slightly,
reflecting the recent slowdown in consumption.
"In addition, the projection of ethanol use of corn during the
2008-09 marketing year may be cut from the current projection of
4 billion bushels," he said. "The June 30 Acreage report and
weekly crop condition ratings will provide some indication of
the likely July projection of production.
"Prospects will continue to be for very tight stocks next year,
underscoring the importance of weather over the next three
months."
By Bob Sampson, University of
Illinois |
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