Urbana, Illinois
July 28, 2009Corn prices
have settled into a relatively narrow trading range, with
December 2009 futures trading between $3.20 and $3.50 per bushel
over the past three weeks. According to
University of
Illinois Extension Economist Darrel Good, the relatively
low price level reflects the anticipation of a large harvest in
2009.
The USDA will release the first survey-based corn-yield
projection on August 12. This survey will also be used to update
estimates of planted acreage of corn and acreage expected to be
harvested for grain in 2009.
“The update of the acreage estimate is motivated by late
planting in some states and the possibility that acreage
deviated from June intentions,” Good said.
Market consensus seems favor a modest reduction in acreage
compared to June intentions.
“Since acreage estimates for soybeans are also updated in
August, the report will give some insight into the magnitude of
unplanted acreage. Observation suggests that several thousand
acres were not planted this spring, but this report will reveal
if the total is large enough to alter production expectations of
corn or soybeans,” Good said.
The USDA will also update projections of corn consumption for
the current and upcoming marketing years.
“The USDA’s July Cattle on Feed report indicated that the
inventory of cattle in feedlots with capacity of 1,000 head or
more was 5.3 percent smaller on July 1, 2009 than on July 1,
2008. The July Cattle report also confirmed some liquidation of
both the beef cow and dairy cow inventories, and a 2009 calf
crop that is expected to be 1.4 percent smaller than the 2008
calf crop. These smaller numbers all point to some weakness in
feed demand for corn for the remainder of the current marketing
year and into the 2009-10 marketing year,” Good said.
On the other hand, U.S. corn exports have been relatively large
in recent weeks.
“Export inspections for the week ended July 23 were reported at
an unexpectedly large 52.234 million bushels. Census Bureau
export estimates through May were about 50 million bushels
larger than the cumulative export inspection estimate. If that
margin has persisted, exports during the final 5.6 weeks of the
2008-09 marketing year need to average 36 million bushels per
week to reach the USDA projection of 1.8 billion bushels,” Good
said.
He says it is generally expected that the August USDA reports
will continue to point towards an ample supply of corn for the
2009-10 marketing year.
The state by state yield projections, along with the marketing
year average farm price projection, will have important
implication for those who are evaluating the Average Crop
Revenue Election (ACRE) program.
“Prospects for a 2009-10 average farm price well below the
average for 2007-08 and 2008-09 increases the expectation that
ACRE payments could be triggered at the state level in 2009-10,
even if state average yields are relatively high,” Good said.
“Prospects for a relatively low yield in any state will increase
the likelihood that ACRE payments will be triggered. Prospects
for a lower price will also increase expectations that farm
level payments will be triggered, although prospects for farm
level yields will have to be evaluated carefully. Unusually high
average farm yields could offset the impact of a lower price,”
he said.
If a large corn crop does materialize in 2009 and prices remain
low through harvest, crop revenue insurance payments may also be
triggered, particularly for those producers who experience lower
yields.
“A combination of crop revenue insurance payments and ACRE
payments could help offset the financial impact of lower average
corn prices during the year ahead,” Good said.
“For now, additional sales of 2009 crop corn are not appealing.
December futures remain well below the crop revenue insurance
guarantee. With the market generally expecting a very large 2009
harvest, additional downside price risk may be minimal for the
time being,” he said. |
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