CORN AND SOYBEAN PRICES AHEAD?
Forecasts of a period
of hot, dry weather created a bit of a rally in corn and soybean
prices late last week. Some forecasters were suggesting an extended
period of very hot weather as the eastern corn belt corn crop
approached pollination. There continues to be a wide range of
opinion about weather prospects for the remainder of the growing
The National Weather
Service outlook for July (released on June 17) showed prospects
for normal temperatures in almost the entire country. Areas of
above normal temperature prospect included Florida, the Gulf Coast
of Texas, and a small area in the far west. Generally normal precipitation
is forecast for the Corn Belt, with an area of below normal rainfall
indicated for eastern South Dakota and western Iowa. The 90-day
forecast (through September) indicated prospects for normal temperatures,
except for an area of below normal in the southern Great Lakes
area. Prospects are for normal precipitation, except for a small
area of above normal in Michigan, southern Ohio, and northwest
Indiana. Based on the 30 and 90 day outlooks, no widespread threat
to the corn and soybean crops exists. The forecast suggests that
periods of hot, dry weather will be brief. If that is the case,
timing of any adverse weather in relation to crop reproduction
and maturity will be very important.
While weather and
crop prospects will remain the number one price factor, a series
of USDA reports through the end of the month may have some price
implications. The monthly Cattle on Feed report released
on June 18 revealed a larger than expected number of cattle on
feed as of June 1. June 1 feed lot inventories were 3.4 percent
larger than on the same date last year. The larger inventory suggests
that feed grain demand may be a little stronger than projected.
The June 1 Hogs and Pigs inventory to be released on June
25 will provide an update on the industrys liquidation plans.
Recently, the number of market hogs have exceeded the projections
based on the March Hogs and Pigs report, raising concerns
that liquidation has not been as rapid as indicated earlier.
The June 30 Grain
Stocks report will be important for both corn and soybeans.
For corn, the June 1 inventory will allow a calculation of the
level of domestic feed and residual use during the third quarter
of the marketing year. Use was calculated to be record large in
the first quarter, but appeared to slow in the second quarter.
Based on the estimate of livestock production, use during the
third quarter should have been large. Our expectation is that
third quarter corn use for all purposes (including exports) was
slightly over 2.1 billion bushels, leaving June 1 stocks just
under 3.6 billion bushels. Inventories will be at the highest
level since 1993 and the second highest since 1988. Even so, year
ending (September 1) stocks are not expected to be burdensome
in relation to the current rate of consumption.
For soybeans, the
June 1 stocks estimate will shed some future light on the accuracy
of the 1998 production estimate. The December and March stocks
reports showed a very high level of "residual" use,
suggesting the 1998 crop may have been overestimated. If that
is confirmed in the June report, stocks should have been near
860 million bushels, slightly higher than the previous record
of 849 million in 1986.
Perhaps the most
important report will be the acreage report to be released on
June 30. That report will provide some insight into two important
issues. The first is the question of total crop land area, and
the second is deviation from March intentions for individual crops.
The report probably will not provide the final answer to these
questions since decisions were still being made at the time of
The issue of total
crop land area is raised by the fact that the March Prospective
Plantings report showed about 4 million fewer crop land acres
than were planted in 1998. That opens the door to find some acres
in the June report. However, extremely wet weather in some areas
may have resulted in some prevented planting and a decline in
total acres. At least one private analyst is reportedly expecting
a significant reduction in corn acres (about 1.9 million) from
the March intention and a sizable increase in soybean acres (1.6
million acres). In addition, sunflower acreage is expected to
exceed and spring wheat acres to fall below March intentions.
Trend line yields and an increase in oilseed acreage would continue
to keep substantial pressure on soybean prices. A decline in corn
acres, along with increased old crop consumption, would be somewhat
supportive to corn prices. There are enough uncertainties going
into the reports that price reaction could be significant.
Issued by Darrel
University of Illinois