CORN EXPORTS CONTINUE AS THE
The cash price of corn in central
Illinois during the 2000-01 marketing year moved from a low
of $1.51 on September 19 to a high of $2.105 on December 29.
The increase reflected an increase in March futures of $.325
and a strengthening of the basis of $.27. The price stood at
$2.04 on January 5. Fundamentally, the increase in futures prices
has been driven by three major factors. First, the market generally
expects the USDA Grain Stocks reports to be released on January
11 to confirm a record rate of domestic corn use during the
first quarter of the 2000-01 marketing year. Second, the final
production estimate for the 2000 crop, also released on January
11, is expected to be significantly smaller than the November
estimate of 10.05 billion bushels. Third, the market generally
expects producers to reduce corn acreage in 2001 in response
to higher costs and/or reduced availability of Nitrogen fertilizer.
While the post-harvest price recovery
has been impressive, it still leaves cash prices at a relatively
low level. Basis levels remain weak. The major factor limiting
corn price recovery has been the slow pace of U.S. corn exports.
The USDA has projected marketing year exports at 2.2 billion
bushels, 263 million more than exported during the 1999-00 marketing
year. Through the first 18 weeks of the marketing year, cumulative
export inspections stood at 642 million bushels, 76 million
less than inspections of a year ago. The biggest decline in
exports (55 percent) is to South Korea, as China continues to
sell corn in Asia. Shipments to Japan and Taiwan are down about
10.5 percent, while Mexico has imported 14 percent more U.S.
corn than during the same period last year.
Outstanding export sales of corn
as of December 28 stood at 264 million bushels, 15 percent less
than on the same date last year. The largest decline in unshipped
sales (72 percent) was to South Korea, followed by Japan (21
percent). Total export commitments (shipments plus outstanding
sales) as of December 28 were 116 million bushels (12 percent)
less than on the same date last year.
To reach the USDA's projection
of 2.2 billion bushels for the marketing year, shipments during
the last 34 weeks of the marketing year will need to average
45.6 million bushels per week. That is an increase of 10 million
per week from the average during the first 18 weeks of the year
and an increase of 11 million bushels per week from the average
during the same period last year. It now seems likely that exports
will fall short of the current USDA projection. To avoid a significant
shortfall, Chinese shipments will have to decline during the
next 8 months and Japanese purchases will have to get back on
track. Longer term, the Japanese may well increase efforts to
find alternative sources of corn, much as they did with soybeans
following the U.S. export embargo of 1973. Developments in South
American corn production will be watched closely.
Returning to the price supporting
factors, the market has every right to expect record domestic
feed and residual use of corn during the first quarter of the
marketing year. Animal numbers were larger than a year ago,
feed prices were generally low, and the 2000 sorghum crop was
much smaller than the 1999 crop.
History also supports the anticipation
of a smaller 2000 U.S. crop estimate. In years when estimates
decline from August through November, there is a tendency for
the January estimate to be lower than the November estimate.
There have been exceptions, however, and the magnitude of decline
has been highly variable. A large decline is expected this year,
in part, due to reports of abnormally large field losses in
some areas. Such a large expectation leaves room for a surprise.
The question about U.S. corn acreage
in 2001 is the more interesting and the more important longer
term. The cost or lack of availability of Nitrogen fertilizer
is generally expected to result in corn producers switching
to alternative crops on as much as three million acres. Anticipating
such a large switch this early seems a little premature. Many
producers may opt to reduce the rate of Nitrogen application,
rather than switching acres. A reduction in Nitrogen rates can
be accomplished by many producers who traditionally have exceeded
optimum application rates. In addition, a marginal reduction
from optimal rates would likely have little impact on average
yields, depending on growing conditions. In addition, the higher
price of new crop corn more than compensates for higher Nitrogen
prices for many producers. The USDA will release a Prospective
Plantings report on March 30.