Urbana, Illinois
September 22, 2008
Developments in the financial
markets could have implications for the demand prospects for
corn and soybeans, said a University of
Illinois Extension marketing specialist.
"If problems in those markets lead to weakening U.S. and
world economies, the demand for both food and energy could also
weaken with direct implications for corn and soybean prices,"
said Darrel Good. "Similarly, any evidence that those financial
issues have been adequately addressed and the worst is over
would suggest a more stable demand scenario."
Good's comments came as he reviewed corn and soybean prices
which continue to be influenced by a wide array of factors,
resulting in a very unstable price pattern. Over the past week,
December 2008 corn futures traded in a range of 55 cents. In the
past seven trading session, November 2008 soybean futures traded
in a range of about $1.20.
"On a daily basis, prices have been influenced by changes in the
value of the U.S. dollar, changes in crude oil prices, export
news, weather and production expectations, and developments in
financial markets," he said. "In general, a weakening of the
U.S. dollar has been viewed as positive for export prospects and
therefore for prices of corn and soybeans. A strengthening of
the dollar has been viewed as a negative for both."
Lower crude oil prices are generally viewed as having a negative
impact on crop prices due to the relationship between the price
of gasoline and the price of biofuels and the resulting
profitability of biofuels production.
"Higher crude oil prices, then, are viewed as positive for corn
and soybean prices," said Good.
The pace of U.S. corn export sales and shipments continue to lag
the pace of a year ago. During the first 2.5 weeks of the
2008-09 marketing year, the USDA reports export inspections of
only 77 million bushels, compared to 123 million bushels during
the same period last year.
Through Sept. 11, the USDA's report of export sales showed total
export commitments (shipments plus outstanding sales) for the
current year at 488.5 million bushels compared to 735.3 million
on the same date last year.
"The 33.6 percent decline in commitments compares to the USDA's
projection of a 17.5 percent drop in exports for the year," said
Good. "Sales to most of the largest buyers of U.S. corn--Japan,
South Korea, Taiwan, and Mexico--are lagging the pace of a year
ago."
The early pace of U.S. soybean exports is lagging the pace of a
year ago, but unshipped sales are larger than sales of a year
earlier. In the first 2.5 weeks of the year, export inspections
totaled 10.8 million bushels, compared to 38.1 million in the
same period last year.
"However, as of Sept. 11, the USDA reported total export
commitments of about 344 million bushels, compared to 317
million on the same date last year," he said. "The USDA projects
a 13.4 percent drop in exports this year, but early commitments
exceed those of a year ago by almost 9 percent. Japan and South
Korea account for much of the year-over-year increase."
World wheat, coarse grain, and soybean production are expected
to be record large in 2008-09. Wheat production is expected to
be large enough to result in an increase in year-ending stocks
for the first time in four years.
Current wheat production concerns center around Argentina and
Australia, where dry weather continues to threaten crop
development. Earlier this month, the USDA lowered the production
forecast for Australia by 12 percent and the forecast for
Argentina by 7 percent.
"World coarse grain stocks are expected to decline and world
soybean stocks are expected to increase modestly," Good said.
"The increase in soybean stocks, however, is dependent on the
size of the 2009 South American harvest."
Good said that for the near term much of the projection focus
will continue to be on the size of the U.S. corn and soybean
crops.
"It appears the late-maturing crops will not be impacted by a
widespread early freeze," he said. "However, the drop in yield
and production forecast for both crops earlier this month may
point to a further decline in October."
Since 1970, there has been a modest correlation between the
change in the production forecast in September and the change in
October. The correlation is stronger for corn than for soybeans.
"The October report, however, will contain more complete
information about planted, and therefore harvested, acreage of
both crops which may impact the production forecasts," he said.
For now, both corn and soybean prices appear to be in a broad
trading range.
"For December 2008 corn that range extends from about $5 to
$6.25" said Good. "The current price is near the middle of that
range.
"For November 2008 soybean futures, that range extends from
about $11 to about $13 and the current price is also near the
middle of that range."
By Bob Sampson, University of
Illinois |
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