Weekly Outlook: Unsettled Crop Markets

US - Sustained weakness in corn, soybean and wheat prices is not expected in the near term as supplies remain tight and demand is firm, said a University of Illinois Extension marketing specialist.
calendar icon 20 November 2007
clock icon 4 minute read

"Tight world stock will continue to magnify the impact of production uncertainty into the foreseeable future," said Darrel Good. "Volatility in energy and currency markets will also add to the volatility of crop prices. Risk has increased significantly."

Good's comments came as he reviewed the crop markets. With the U.S. corn and soybean harvest about complete and the size of those crops pretty well known, focus is now on a wide array of other factors, including U.S. winter wheat conditions, crop developments in the rest of the world, U.S. acreage prospects in 2008, and domestic and export demand.

On the supply side, Good noted there is growing concern about dry conditions in hard red winter wheat areas in the United States. As of Nov. 11, the USDA rated only 49 percent of the entire winter wheat crop in good or excellent condition, compared to 53 percent the previous week and 59 percent last year.

"A further deterioration in conditions was expected to be reported on Nov. 19," he said. "In addition to the U.S. crop, there are also concerns about planting delays in India due to dryness and some uncertainty about the extent of frost damage to the crop in Buenos Aires, Argentina.

"Generally, favorable conditions persist for much of Europe and China."

For corn and soybean production, most of the focus is on South America. The USDA has forecast the 2008 harvested area of corn in Argentina at 7.4 million acres with production potential of just under 900 million bushels, equal to the size of the 2007 harvest.

"There is some uncertainty about frost damage to the crop in Buenos Aires, but the market appears to think the damage was minor," said Good. "Upcoming precipitation appears to be favorable for crop development.

"Harvest area in Brazil is forecast at just less than 35 million acres, with production potential of 1.97 billion bushels, slightly less than harvested in 2007. Growing conditions have been less than ideal, with some dryness in the north and excessive precipitation in the south, but production prospects remain generally intact."

For soybeans, the USDA has forecast the 2009 harvested area in Argentina at 41.5 million acres, 5.7 percent more than harvested in 2007.

"Production prospects are projected at 1.73 billion bushels, marginally below the size of the 2007 harvest," he noted. "Acreage in Brazil is projected at 54.3 million, 6.3 percent more than harvested in 2007. Production is forecast at 2.28 billion bushels, 5.1 percent larger than the 2007 crop.

"At that projected level, the size of the 2008 South American soybean crop would not be large enough to offset the reduction in the size of the 2007 U.S. harvest. The weather events described above will keep production prospects in limbo."

An increase in soybean acreage in the United States is being anticipated, he noted. Current price relationships, however, suggest that corn production remains very competitive to soybeans in many areas of the country. The size of the needed increase in acreage will not be known for several more weeks.

"While producers tend to make acreage plans early, some flexibility will be maintained into planting time," he said. "In 2007, for example, corn plantings exceeded March intentions by nearly 3.2 million acres and soybean plantings were nearly 3.5 million below March intentions."

On the demand side, domestic corn and soybean demand appears to be improving. While the number of cattle in feedlots with capacity of 1,000 head or more was less than that of a year ago on Nov. 1, placements into feedlots during October were 12 percent larger than placements in October 2006. Hog slaughter is currently record large, and broiler production is expanding more rapidly than would have been anticipated with high feed costs.

"These developments should support feed consumption at very high levels," said Good. "The continuation of high crude oil prices, rising gasoline prices, and some recovery in ethanol prices bode well for corn demand for ethanol production and soybean oil demand for biodiesel production.

"After reaching a low of $1.49 per gallon in late September, the average price of ethanol at Iowa plants was reported at $1.77 on Nov. 16. The calculated crush margin at those plants dropped to $1.72 per bushel on Sept. 28, but recovered to $2.60 per bushel on Nov. 16."

On the export side, focus continues to be on Chinese demand for soybeans and soybean oil and the potential for China to import corn.

"Modest-sized crops along with surging livestock demand have resulted in concerns about food price inflation in China," said Good. "With a relatively low-valued U.S. dollar, China may address those concerns with larger imports of soybeans and soybean oil and reduced exports of corn.

"The questions tend to center around how much of the import buying has already been done."

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