Urbana, Illinois
September 2, 2008
Two broad fundamental factors
appear to be influencing corn and soybean prices as the growing
season reaches the last stages, said a University of
Illinois Extension marketing specialist.
"One of those factors is the potential size of the 2008
U.S. harvest and the other is the level of energy prices," said
Darrel Good. "Crop size is important for obvious reasons and
energy prices are important in determining the value of crops
for biofuels production.
"That link is especially important for ethanol and corn prices."
On Sept. 12, the USDA will release a new production forecast for
corn and soybean. There appears to be a fairly wide range of
expectations for the size of the new forecasts, which will
primarily reflect a reassessment of yield potential.
"The dry end to the growing season in some important production
areas has some leaning toward smaller yield forecasts," he
noted. "Improving weather in southern growing areas and
relatively high crop condition ratings suggest to others that
yield forecasts might hold steady or increase."
As of Aug. 24, just ahead of the survey period for the September
yield forecasts, the USDA reported that 64 percent of the corn
crop and 61 percent of the soybean crop were rated in good or
excellent condition.
"If those ratings held through the end of the growing season,
past relationships between crop condition ratings and the
trend-adjusted U.S. average yield would point to 2008 average
yields of 154.4 bushels for corn and 43.5 bushels for soybeans,"
he said.
"Such a corn yield would be 0.6 bushels below the August
forecast, but the soybean yield would be three bushels above the
August forecast. Over the past 35 years, the largest increase in
the U.S. average soybean yield forecast in September was 2.2
bushels in 2006. That year, the actual U.S. yield was 3.1
bushels above the August forecast."
Another way to form expectations about the September yield
forecasts using the crop condition ratings is the change in
condition ratings since the survey period for the August
forecast. The percentage of the crops rated good or excellent
since that time has dropped two percentage points for both
crops.
"Such a decline points to a 1.3 bushel decline in the corn yield
forecast, to 153.7 bushels, and a 0.4 bushel decline in the
soybean yield forecast, to 40.1 bushels," he said. "Those
calculated changes could be adjusted by the crop condition
ratings released on Sept. 2."
Beyond the September yield forecasts, the location and amount of
rainfall in early September will likely be more important for
soybean yields than for corn yields, he added.
"If the estimates of harvested acreage and the forecasts of
consumption during the 2008-09 marketing year remain unchanged,
the lower yield forecast based on the change in crop condition
ratings during August would point to year-ending stocks of 1.03
billion bushels for corn and 106 million bushels for soybeans,"
Good said.
Prices for crude oil and the resulting price of unleaded
gasoline have implications for the price of ethanol and the
price ethanol producers can pay for corn.
"As a guide, the maximum economic value of ethanol is the price
of unleaded gasoline, adjusted for the difference in energy
content, plus the blender's tax credit," he said. "That credit
is currently at 51 cents per gallon, but is scheduled to decline
to 45 cents in 2009.
"The current price of wholesale unleaded gasoline of about $2.70
per gallon makes ethanol worth about $2.26 per gallon with a 45
cents blender's tax credit. Assuming that the price of corn and
distillers grain move together and that the non-corn cost of
making ethanol is about $2.60 per bushel, the breakeven price of
corn for ethanol producers is about $5 per bushel."
Good noted that factors beyond crop size and energy prices could
be important for corn and soybean prices.
"The ultimate size of the world wheat crop, prospects for South
American soybean production, world economic conditions, and
perhaps the value of the U.S. dollar will influence export
demand," he said. "The profitability of the U.S. livestock
industry will influence domestic feed demand.
"The year-over-year decline in domestic soybean meal consumption
since April and the sizeable year-over-year decline in the
domestic soybean crush in July indicate some weakening of feed
demand, although part of the decline is likely the result of
larger supplies of distillers grains."
Current prospects for supply, consumption, and stocks suggest
that corn and soybean prices will remain relatively high, but
will likely trade in a wide range for an extended period.
"That volatility will likely increase even further with the
start of the 2009 planting season," Good said.
By Bob Sampson, University of
Illinois |
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