February 22, 1999
IMPLICATIONS OF 1999 CORN AND
Increasingly, the price of corn
and soybeans will take direction from 1999 crop prospects. It
appears that a reduction in yield will be required to turn prices
higher, particularly for soybeans. The list of negative market
factors for soybeans is extensive. As outlined last week, the
current pace of consumption of the 1998 crop is below the level
needed to reach the USDA projection for the year., The current
strength in the value of the U.S. dollar suggests that importers
will aggressively turn to South American soybeans and soybean
meal later this spring. Year ending stocks will likely be well
above the current projection of 410 million bushels.
Harvest of the South American crop
has begun and another large harvest is almost assured. There is
some chance that production will exceed the record 1998 harvest
of 1.95 billion bushels. Unless Brazil implements a soybean export
tax or the Brazilian currency makes a quick recovery, that crop
is expected to move to market rapidly.
Increased plantings of soybeans
in the U.S. in 1999 seems very likely. The major debate centers
around how large of an increase. Relative commodity prices and
spring weather conditions will have some impact on that decision.
Market fundamentals for corn are
generally less negative than for soybeans, but fundamentals cannot
really be termed as friendly. Placement of cattle into feedlots
in January were larger than expected, but February feed lot inventories
are still 5 percent smaller than inventories of a year ago. Increased
feeding of soft red winter wheat and continued liquidation of
the hog breeding herd suggest some potential softness in feed
demand for corn. A continuation of the strength in the value of
the U.S. dollar would also be a bit negative for corn export prospects.
Still, year ending stocks are expected to be modest and at least
a small decline in acreage is expected in 1999.
In general, spring weather is not
as important in determining yield as is summer weather, particularly
for soybeans. Soybeans have a later and longer window of planting
than does corn. Current indications from the National Weather
Service and others suggest that spring weather could be a little
drier than normal, especially in western growing areas. Such a
pattern would suggest a rapid planting season and no weather induced
change in planting intentions. If this pattern materializes, summer
weather will once again dominate yield and production prospects.
Potential for a weather based price rally may be several months
away. Another year of trend yields would likely result in further
The nature of the 1999 growing season
and the size of the fall harvest not only has implications for
the price of corn and soybeans, but also for potential change
in farm policy. A second consecutive year of low prices would
likely bring some modification in existing policy. The most contentious
issue may be set-aside programs. Supply control through annual
set-aside programs was a cornerstone of policy prior to 1996.
With the changes in planted acreage since 1996, any set-aside
program instituted now would likely have to be on a whole from
basis, rather than commodity by commodity. The method of determining
payment, if any, for set-aside could be complicated. To a lesser
extent, there may be some interest in returning to government
owned or controlled crop storage to manage short term surplus
If supply control measures are not
embraced, then the debate may center around income support policies.
Those would include an evaluation of the level of Commodity Credit
Corporation loan prices and the current schedule of production
Independent of these broader policy
issues, there may also be some pressure to change the method of
determining loan deficiency payments (or marketing loan payments).
The inequities of the current method of payment determination
were revealed with the 1998 crops.
Issued by Darrel
University of Illinois