While near-term prospects do not point to a significant rebound in corn prices, history suggests that cash prices will recover by the spring/summer of 2006, at least for a brief period, said a University of Illinois Extension marketing specialist.

"The 'typical' rebound in cash prices from fall lows to spring/summer highs in Illinois is about 70 cents per bushel," said Darrel Good.

Good's comments came as he reviewed recent corn prices. December corn futures reached a growing season high of $2.72 on July 18 and have moved steadily lower since. A contract low of $1.94 was reached on Nov. 7, just three cents above the low for the December 2004 contract.

"The steady decline in prices generally reflects the fact that the 2005 U.S. crop turned out to be much larger than mid-season expectations," said Good. "Market participants tend to point to higher-than-expected yields in dry areas like Illinois in explaining why the market misjudged yield and production potential.

"However, the real surprise is in high-yielding states like Iowa. A crop yield model that correlates growing season precipitation and temperature to state average yields projects the 2005 Illinois average yield only four bushels below the USDA's October forecast. However, the crop yield model for Iowa projects yields 15 bushels below the USDA's October forecast."

While corn futures prices continue to drift lower, cash prices in many areas have increased modestly over the past three weeks. The average overnight cash bid in central Illinois, for example, reached a low of $1.635 on Oct. 18 and recovered to $1.705 on Nov. 4. The average central Illinois basis was at the weakest level in early October.

"The weak basis in Illinois reflected a combination of factors, including large supplies, rapid harvest, transportation bottlenecks, and high transportation costs," said Good. "It appears, however, that transportation issues and the rapid harvest were larger contributors to the weak basis than the large grain supply.

"Based on the USDA's estimate of Sept. 1 stocks of all grain in Illinois and the October USDA forecast of corn, soybean, and sorghum production in the state, the total fall grain supply was 5 percent smaller than the supply of a year earlier. This contrasts to the situation in Iowa were the total of September stocks and production of fall-harvested crops was 7.5 percent larger than the total of a year ago."

Since the first week of October, the average basis in central Illinois has strengthened about 14 cents. On Nov. 4, the average basis was minus-25 cents. That average was 1 1/2 cents stronger than on the same date last year. The strengthening of the basis was reflected in a general decline in the loan deficiency payment (LDP) rate. In Illinois, that rate peaked at 48 cents, but stood at 42 cents on Nov. 7. A continued strengthening of the basis through year-end is expected.

"While corn prices are apparently establishing seasonal lows, current fundamental factors do not point to a significant increase in the immediate future, barring a surprise in the November production forecast," said Good. "The USDA's November Crop Production report, to be released on Nov. 10, will provide the last crop size information until the release of the final production estimate on Jan. 12.

"For the next two months, the market will be influenced mostly by the rate of use of the 2005 crop. Little information on domestic feed use will be available until the release of the Dec. 1 Grain Stocks report on Jan. 12. The most plentiful information will be on the pace of exports."

Good noted his earlier concern about the early pace of U.S. corn exports.

"Export performance to date varies by importer," he said. "Five countries account for about three-quarters of U.S. corn exports--Japan, Taiwan, South Korea, Egypt, and Mexico. Export commitments--shipments plus outstanding sales--are lagging the pace of a year ago to Japan and Egypt, but exceed last year's pace for the other three countries.

"As of Nov. 3, cumulative export inspections to all destinations were about equal to those of a year ago. The USDA projects a 10 percent year-over-year increase in U.S. exports."

After the first of the year, the corn market will be influenced to some degree by expectations about the magnitude of corn acreage in 2006. Escalating production costs of corn relative to soybeans is generating expectations of reduced corn acreage and increased soybean acreage in 2006.

"Current futures prices, however, do not provide a strong signal about acreage changes," said Good. "Closing futures prices on Nov. 4 reflected a 2006-07 marketing year average farm price near $2.40 for corn and near $6.05 for soybeans. Depending on yield expectations and cost differences, those prices might favor soybeans over corn by a small margin.

"The USDA's report of winter wheat seedings, to be released on Jan. 12, will provide some insight into year-over-year changes in the amount of acreage available for spring-planted crops."

By Bob Sampson, PhD