Urbana, Illinois
August 4, 2008
Next week's release of the USDA's
August Crop Production report will provide an important
benchmark for assessing 2008 corn and soybean production, said a University of
Illinois Extension marketing specialist.
"Given the unusual level of uncertainty surrounding
production prospects this year, the report has the potential to
produce a sharp price response," said Darrel Good. "Given the
large price drop over the past three weeks, the greater risk may
be smaller than expected.
"For both corn and soybeans, revenue insurance products now
provide some important downside price protection for unpriced
production. November 2008 soybean futures had declined below the
spring price guarantee for revenue insurance products. For corn,
December 2008 futures are only about 30 cents above the spring
price guarantee."
Good's comments came as he reviewed corn and soybean prices both
of which have declined sharply since establishing contract highs
in the midst of widespread crop concerns in June and early July.
December 2008 corn futures reached a high just below $8,
declined to a low just above $5.60, and are currently trading
near $5.70. November 2008 soybeans futures reached a high just
short of $16.37, but declined to just above $13 in early trading
on Aug. 4.
"The decline in prices over the past month reflects a number of
shifting fundamentals, including lower crude oil prices,
declining ethanol margins, slowing corn exports, increased wheat
feeding, and indications of some reduction in livestock
production," he said.
"The main contributor to the price decline, however, was
improving crop condition ratings and the resultant larger
production expectations."
As of June 15, the USDA's Crop Progress report showed only 57
percent of the U.S. corn crop in good or excellent condition. By
July 27, 66 percent of the crop was rated in good or excellent
condition compared to only 58 percent in those two categories on
the same date last year.
Improvements in the soybean crop condition ratings have been
less dramatic, but good or excellent ratings increased from 56
percent as of June 15 to 62 percent as of July 27. Only 58
percent of the crop was in good or excellent condition at the
end of July last year.
"The crop condition ratings have been reported in the current
form since 1986," Good said. "From 1986 through 2007, there was
a relatively high correlation between the percentage of the crop
rated good or excellent at the end of the season and the U.S.
average trend-adjusted yield, starting the trend calculation
with 1986. Crop conditions at the end of the season have
explained 88 percent of the annual variation in the U.S. average
trend-adjusted corn yield and 85 percent of the annual variation
in the U.S. average trend-adjusted soybean yield.
"If the current crop condition ratings persist through the end
of the season, the 2008 U.S. average corn yield would be
projected at 155.7 bushels per acre and the U.S. average soybean
yield would be projected at 43.7 bushels per acre."
Those yields are well above the long term (1960-2007) trend
yields for 2008 of 150.7 bushels for corn and 41.4 bushels for
soybeans and are likely above the expectations for the USDA's
August Crop Production report to be released on Aug. 12, he
added.
More modest yield forecasts are expected due to the variability
and general lateness of crop development. As of July 27, only 7
percent of the corn crop in the 18 major corn-producing states
was reported in the dough stage, compared to the 19 percent
average in the previous five years.
Only 21 percent of the soybeans were reported to be setting
pods, compared to the five-year average of 38 percent.
The USDA's National Agricultural Statistics Service (NASS)
indicated in the June Acreage report that the number of fields
selected for objective yield measurements and the sample size
for the August Agricultural Yield Survey would be increased.
"Still, the lateness of the crops makes it very difficult to
judge yield potential, particularly for soybeans," said Good.
"For both crops, weather conditions over the next two months
will be extremely important for determining yield potential. A
lot of yield uncertainty will persist after the August report."
The August Crop Production report will provide a more precise
estimate of planted acres of corn and soybeans and an updated
forecast of acreage harvested for grain. In the June Acreage
report, NASS indicated that approximately 9,000 farmers would be
re-interviewed in mid-July to more fully assess actual plantings
and acreage intended for harvest.
"That information will be incorporated into the August
production forecasts," said Good. "Like yield forecasts,
however, the acreage forecasts are subject to revision as more
information becomes available later in the season."
By Bob Sampson, University of
Illinois |
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