Corn and soybean futures prices spiked to contract highs in April, but declined significantly in recent weeks illustrating a volatile price pattern as market participants react and overreact to each piece of new information. "I expect this volatile pattern to continue," says Darrel Good, University of Illinois Extension economist.
In terms of corn supply, the market will closely watch current weather, long-term forecasts and USDA’s weekly crop progress and crop condition reports.
"The 2004 planting season started early and has progressed rapidly,” notes Good. “National Weather Service forecasts for May through July paint generally favorable prospects for the corn crop. In addition to the crop’s progress, the market will continue to speculate about the magnitude of planted acreage."
Rapid planting progress has led to speculation that corn acreage will exceed March intentions, some believe by 2 to 3 million acres.
On the demand side, the pace of export sales will be the main information available to the market between now and the release of the June 1 Grain Stocks report on June 30.
As of mid-April, accumulated exports since Sept. 1, 2003 totaled 1.205 billion bushels, according to USDA. That's 21 percent larger than shipments during the same period last year. In addition, unshipped sales as of April 15, totaled 380 million bushels, 87 percent larger than outstanding sales of a year earlier.
"Export commitments, which include shipments plus sales, were 32 percent larger than those of a year ago. USDA has projected a 26 percent increase in exports for the year. To achieve that, shipments in the last 20 weeks of the marketing year will have to average nearly 41 million bushels a week to reach the 2-billion-bushel projection. Shipments have averaged only 35 million per week over the past 4 weeks and 38 million bushels per week over the past 8 weeks," says Good.
For soybean demand, the market will focus on the pace of the domestic crush, the magnitude of meal and oil imports, and the South American crop.
"The needed adjustment in the pace of U.S. soybean exports and export sales has been made. The domestic market will not “run out” of soybeans, but the pace of use does have to slow considerably," he notes. The question is, have end users made the necessary adjustments or will prices need to move higher to stretch available supplies?
"Market opinion is divided, but recent price behavior suggests that prospects for reduced consumption, increased imports and early harvest may be sufficient to meet needs without sharply higher prices. The size of the South American crop is more important for prospective demand for the 2004 U.S. crop. Export sales of the 2004 crop are record large. Two-thirds of those sales are to China, and 20 percent are to 'unknown' destinations that likely include China," he notes.
On the supply side, the market will follow the progress of the U.S. crop, as well as weather forecasts and weekly crop-condition reports.
"There is some expectation that actual plantings will be smaller than March intentions. However, the switch to corn may be small and mostly offset by switching some intended cotton acreage to soybeans. The potential is for a large 2004 U.S. harvest and increased acreage in South America. Trend yields in both the United States and South America in the year ahead would result in an abundance of soybeans," says Good.
To date, the 2003/2004 soybean marketing year most resembles 1976/1977 when the small crop of 1976 was recognized late and the consumption rate did not slow until the middle of the marketing year. July 1977 futures peaked at $10.64 in late April of that year. July 2004 futures peaked at $10.64 in early April this year.
"The sharp, rapid price decline that occurred in summer 1977 is not expected to repeat this year, but trend yields would result in lower prices by harvest,” says Good. Corn prices are expected to remain well supported, even with good yield prospects due to expanded usage. The June 30 Acreage report will be important an important one to watch.
University of Illinois