Urbana, Illinois
November 8, 2004The
extremely large U.S. corn and soybean crops of 2004 have pushed
cash prices sharply lower,
said a University of
Illinois Extension
marketing specialist.
"The average cash price of corn
in central Illinois has reached the lowest level since the
2000-01 marketing year, and cash soybean prices are the lowest
since the 2001-02 marketing year," said Darrel Good.
Good's comments came as he reviewed the current prices in the
context of historical price trends and the potential influence
of upcoming USDA reports.
Historically, lows in cash corn prices in Illinois (and
presumably in other Corn Belt states) have occurred either at
the beginning or the end of the marketing year. Over the past 31
years, the marketing year low was established in September or
October 14 times and in July or August 14 times. Lows came in
November, January, and February one time each.
"We have come to expect that lows in the cash market come early
in the marketing year in years of very large crops, like 2004,"
said Good. "The harvest lows reflect low futures prices and a
weak basis. The data generally support this belief, but there
have been exceptions. New lows in some large crop years have
been established late in the marketing year when another large
crop was developing."
For the current marketing year, the lowest overnight average
cash corn bid reported in central Illinois was $1.695,
established on Nov. 4. That low compares to lows ranging from
$1.45 to $1.795 during the 1998-99 through 2001-02 marketing
years.
"It now appears that for the current year a seasonal low, or
perhaps marketing year low, will be established around the
USDA's November Crop Production report to be released on Nov.
12," said Good. "A larger crop forecast would likely push prices
below the current low, while an unchanged to smaller forecast
would produce a small price increase.
"A combination of good demand and concerns about the 2005 crop
is expected to result in some significant price recovery by the
spring/summer of 2005. Of the past 15 years when a price low was
reached in the fall, a marketing year high cash price was
reached in December one time, April one time, May one time, June
four times, July five times, and August three times. The high in
those 15 years ranged from 44 1/2 cents to $2.525 above the fall
low."
The seasonal pattern of cash price highs and lows for soybeans
over the past 31 years has been similar to the pattern for corn.
The marketing year low cash price in central Illinois was
established in September, October, or November 15 times and in
July or August 12 times. The low occurred once each in December,
March, April, and June.
For the current marketing year, the lowest cash price was $4.80,
occurring on Oct. 13, 2004. The current cash price is just
marginally above that low. The low price to date compares to
lows ranging from $3.875 to $4.295 during the 1998-99 through
2001-02 marketing years.
"Given the size of this year's U.S. crop and prospects for large
increases in U.S. and world stocks, there is less confidence
that soybean prices have established a seasonal or marketing
year low," said Good. "While the basis has generally been weak,
futures prices have been supported by a low rate of soybean
sales by producers and the need for processors to refill the
pipeline.
"That combination has resulted in much of the carry being
removed from the futures market and November futures being
premium to January futures as times. That price structure is
highly unusual with such a large crop and storage capacity
issues."
The slow pace of soybean sales by producers has been explained
by the theory that producers anticipate harvest price lows and a
post-harvest recovery. Sales are being delayed in anticipation
of established large loan deficiency payments (LDPs) and then
holding soybeans for a price recovery. Ironically, the
reluctance to sell has prevented prices from declining as much
as anticipated so that producers are still waiting for larger
LDPs.
In addition to the pace of sales by producers, soybean prices
will be influenced by USDA's Nov. 12 Crop Production report, the
progress of the South American crop, and the pace of Chinese
purchases of U.S. soybeans.
"A sharp break in prices in the next few weeks would increase
the confidence that a marketing year low is being established,"
said Good. "Like corn prices, early season lows in soybean
prices have typically been followed by spring/summer highs. Of
the 15 years with fall lows, the highest cash price occurred in
March one time, May three times, June four times, July five
times, and August two times. The highs in those years ranged
from 93 1/2 cents to $5.13 above the lows.
"A failure of prices to establish new lows soon would leave the
door open for additional price weakness later in the year on the
basis of a large South American crop."
By Bob Sampson, PhD |