Urbana, Illinois
September 6, 2005
Private
forecasters tend to believe that the U.S. corn crop is larger
than the USDA's August estimate and feel the same way about the
soybean crop, said a
University of Illinois
Extension marketing specialist.
"Two of the most followed private estimates place the corn
crop at 10.384 and 10.455 billion bushels, respectively, rather
than the USDA's 10.35 billion," said Darrel Good. "Two of the
most followed private estimates place the soybean crop at 2.835
and 2.84 billion respectively, as opposed to the USDA's 2.791
billion bushels."
Good commented on the markets that have seen reaction in the
cash corn and soybean markets due to disruptions in the
Louisiana Gulf markets, with basis levels weakening in many
tributary markets. With the USDA scheduled to release new corn
and soybean production forecasts on Sept. 12, the market focus
has shifted back to crop size.
"The Sept. 12 production forecast will reflect information
available in late August and early September," Good said. "That
information includes data from a large survey of producers and
data on objective yield surveys in selected states. The data
gathered in the objective yield surveys depend on the maturity
of the crop.
"For corn, kernel row length and ear diameter should be
available from most survey fields. For corn in the dent stage,
weight and moisture content of shelled grain can be collected.
For mature corn, field and lab weight of ears as well as weight
and moisture content of shelled grain can be collected."
Good noted that as of Aug. 28, 61 percent of the U.S. crop was
in the dent stage, but only 11 percent was mature. Data from a
mature crop and from harvest results will be plentiful for the
October report. Historically, the September forecast of corn
production has differed from the January estimate by an average
of 4 percent, while the October forecast has differed by an
average of 2.4 percent. For November, the average error has been
only 1.2 percent.
"Early harvest results for the corn crop are extremely
variable," said Good. "The key to the final yield estimate will
be the extent of pollination problems and average kernel weight.
The warm, dry end of the growing season in some areas suggests
that weights may be below average in those areas. The market
should avoid getting too comfortable with the September
production forecast."
Similar methodology is used to forecast soybean production in
September, he added.
The objective yield survey will still rely heavily on counts of
plants, nodes, branches, and pods. As of Aug. 28, only 6 percent
of the crop was mature enough to be dropping leaves.
"Data on weight of beans per pod and moisture content of
soybeans will be more abundant in the October forecast," he
said. "The historical track record for the USDA's soybean
production forecast is very similar to that for corn. The
average error from 1970 through 2004 has declined from 4 percent
in September to 2.8 percent in October and to 1.5 percent in
November.
"In each case, the January production estimate following harvest
was used to measure the monthly errors."
The average private yield forecast of 39.3 bushels per acre is
0.6 bushel above the USDA's August forecast, but about 0.5
bushel below the average suggested by the weekly crop condition
ratings. The key to the average yield will be the average weight
of soybeans per pod.
"In those areas where the growing season has ended on a warm,
dry note, weights will likely be light, particularly in the
upper nodes," said Good. "In some instances, it has been
observed that those upper pods are blank and have only one bean.
In areas that are ending the growing season under more favorable
conditions, weight per pod should be near normal. A fair amount
of uncertainty about crop size will persist until October."
Cash corn prices have declined below the Commodity Credit
Corporation (CCC) loan rate with deficiency payments (LDP)
reaching 37 cents in Illinois on Sept. 6. Basis levels are
generally weak in most markets and the spreads in the futures
market are large. On Sept. 2, for example, the average spot cash
price of corn in central Illinois was 53 1/2 cents under July
2006 futures. If the basis strengthens to a typical level of
minus-15 cents by spring of 2006, the market is offering a
premium of 38 1/2 cents for corn stored for about eight months.
"If these price relationships persist into harvest, producers
may want to consider capturing the LDP at harvest and forward
pricing--hedging--the crop for later delivery in order to
capture the carry in the market," said Good. "Given the low
level of prices, some may also want to consider capturing the
LDP and storing a portion of the crop unpriced.
"Where storage is not available--or is expensive--capturing the
LDP and selling the crop out of the field might be considered.
Currently, that strategy will result in a net price above the
loan rate in some markets."
Soybean prices remain above the loan rate, basis levels are
generally weak although a bit stronger than that for corn, and
the spreads in the futures market are modest, Good observed.
"Even so, there is some return to storage being offered by the
market," he said.
The average cash bid in central Illinois for example, is 49
cents under July 2006 futures. An improvement to minus-10 cents
by spring suggests a 39 cents return to storage over the next
eight months.
"If these price relationships persist, storing the crop under
loan on the farm and forward pricing--hedging--for later
delivery would capture a good deal of the carry," said Good.
"Selling some of the crop at harvest, storing some unpriced, and
storing some hedged are the primary options. The portion of the
crop allocated to each option will be influenced by the portion
of the crop priced earlier in the year."
By Bob Sampson, PhD |