Urbana, Illinois
March 10, 2008
Increasingly, the dominant factor
determining corn and soybean prices will be 2008 production
prospects in the northern hemisphere, said a University of
Illinois Extension marketing specialist.
"Beyond acreage, growing season weather in the northern
hemisphere will be very important in determining crop size,"
said Darrel Good. "U.S. production has benefitted from unusually
favorable growing conditions since 1996. While regional weather
problems have been experienced, the widespread weather stress
experienced in years like 1980, 1983, 1988, 1991, and 1995 have
been avoided.
"Under current conditions of low stocks and strong demand, low
yields in 2008 could create the need to reduce consumption
beyond what is already occurring in the U.S. livestock
industry."
Good's comments came as he reviewed recent actions in the corn,
soybean, wheat markets, where a steep rally that began last fall
faltered over the past week. After moving to a high of $5.85,
December 2008 corn futures dropped about 45 cents. The decline
in wheat and soybean futures prices was even more dramatic.
After topping at $12.65, July 2008 wheat futures at Chicago lost
$2.10. The November 2008 soybean contract reached a high of
$14.73 before dropping about $2.05 by early in the session on
March 10.
"In general, prices of these commodities, particularly corn and
soybeans, have been very volatile since mid-January as the
market reacts to new information in these markets, as well as
the energy, currency, and financial markets," said Good. "Prices
are being influenced by a wide array of complex factors."
However, he repeated, northern hemisphere production prospects
in 2008 are emerging as the key.
World wheat production reached a record 628.6 million tons in
2004-05 and remained large at 621.5 million tons in 2005-06.
Production dropped to 593.2 million tons in 2006-07 and reached
only 603.6 million tons in 2007-08.
"For the year ahead, there is a general expectation that
production will rebound due to increased seeded area,
particularly in the European Union," he said. "For the United
States, winter wheat producers have reported an increase in
seedings of only about 1.6 million acres, mostly soft red winter
wheat. Spring wheat producers are expected to increase acreage
following the 1.3 million cut last year.
"In addition to increases in the northern hemisphere, production
in Australia is likely to rebound from the extremely low levels
of the past two years. Early projections by the USDA show
prospects for world production to rebound to 645 to 655 million
tons in 2008-09. Production at that level would allow some
significant rebuilding of world wheat stocks and would result in
a further decline in wheat prices."
For corn and soybeans, the immediate focus will be on production
prospects in the United States. The USDA will release its annual
Prospective Plantings report on March 31.
"Expectations for corn and soybean planting intentions are in an
extremely large range as analysts try to anticipate how
producers will respond to the combination of high commodity
prices and escalating input costs," said Good.
"A decline in corn acreage and an increase in soybean acreage
are expected, but the market will have an opportunity to
influence final planting decisions. Last year, for example, area
planted to corn exceeded March intentions by 3.15 million acres
and area planted to soybeans was 3.51 million bushels less than
indicated in March."
A shortfall in corn production might be more problematic than a
shortfall in soybean production, he added.
"A small U.S. soybean crop and resulting high prices would
likely result in a significant response in South America," he
said. "While the same could occur for corn, it is generally
believed that Argentina, and particularly Brazil, have the
capacity for a larger response in soybean production than in
corn production.
"In 2007, for example, corn acreage was unchanged in Brazil and
up 740,000 acres in Argentina. Soybean acreage increased by two
million acres in Brazil and 2.2 million acres in Argentina."
While most of the focus on March 31 will be on the USDA's
Prospective Plantings report, the Grain Stocks report might also
hold some important information, particularly for corn. The Dec.
1 Grain Stocks report showed a surprisingly small inventory of
corn, implying a very large level of feed and residual use of
corn during the first quarter of the 2007-08 marketing year.
"As a result, the USDA increased the forecast of feed and
residual use of corn for the entire marketing year by 300
million bushels," said Good. "The March stocks estimate will
reveal if that forecast is still valid, or whether the 2007 crop
might have been slightly overestimated."
By Bob Sampson, University of
Illinois |
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