February 7, 2005
SEASONAL TENDENCIES FOR LOWS IN CORN AND SOYBEAN PRICES
Corn and soybean prices have suffered additional
pressure so far in February. Futures prices have established
new contract lows and cash prices are nearing the harvest
Corn prices have been pressured by the lack of any friendly
fundamental news. Exports continue to be disappointing and
there is some expectation that USDA will lower the projection
of domestic feed and residual use of corn. The USDA's monthly
report of world supply and demand estimates will be released
on February 9. Any changes in the projection of feed and residual
use, however, may not occur until after the release of the
March 1 Grain Stocks report on March 31.
March 2005 corn futures traded to a new low of $1.9425 on
February 4 and December 2005 futures traded within $.005 of
the contract low of $2.265 established on January 19. It would
be extremely unusual for the December futures contract to
establish a life of contract low at this time of year. Over
the past 34 years, the December contract has never had a low
in January or March and a low occurred in February only once
(1973). In addition, a low occurred in April only twice and
never in May. Some additional pressure on futures prices might
be expected into June or July if intentions to increase acreage
are confirmed and the planting season is favorable.
The average spot cash price of corn declined to $1.78 on
February 3, only $.085 above the marketing year low established
on November 4. Lows in that market have tended to occur in
the fall (15 out of the last 31 years) or in the summer after
harvest (14 out of 31 years). The marketing year cash price
reached a low in January one time (1980) and in February one
time (1975). History, then, would suggest for the current
marketing year that either the November low will hold or a
new low would not be expected until July or August, probably
on the basis of another large crop in 2005.
Recent declines in soybean prices have stemmed from generally
good growing conditions for the South American crop, a slow
down in the pace of the domestic crush, and expectations of
a shift in Chinese business from the U.S. to South America.
March 2005 futures reached a new contract low of $4.985 on
February 4 and November 2005 futures reached a low of $5.20
on the same day. The average spot cash bid in central Illinois
declined to $4.97, only $0.17 above the marketing year low
established on October 13, 2004.
The seasonal pattern of contract lows in November soybean
futures differs from the pattern for corn. Contract lows have
been reached in January, February, or March in 5 of the past
34 years. The most common time for lows, however, is October/November
(13 times) and July/August (8 times). The pattern of lows
in the cash market is more similar to corn. Lows since 1973/74
have never occurred in January or February. Lows occurred
in March once, April once, and never in May. The most common
time for lows has been October (11 times) and August (9 times).
Like corn, history would suggest that for the current year
either the October low will hold or a new low would not be
expected until August. The progress of the South American
crop, planting intentions of U.S. producers, the potential
of soybean rust, and spring/summer weather conditions will
all have a part to play in the price pattern over the next
six months. History may not provide an accurate guide for
Old crop corn prices remain below the loan rate with a large
loan deficiency payment (LDP) rate continuing in most locations.
In addition, bids for harvest delivery of the 2005 crop are
near the loan rate. As a result, the loan price serves as
a price floor for all of the unpriced crops for which an LDP
has not been established. The only risk for unpriced crop
from the 2004 harvest for which the LDP has not been established
is the cost of storage. That is a relatively small cost and
suggests that such corn be held into the start of the growing
season in order to capture weather rallies should they occur.
There is also no urgency to price additional new crop corn.
In contrast, there is considerable risk associated with holding
unpriced old crop corn for which the LDP or marketing loan
gain (MLG) has been established.
Soybean prices have once again declined below the loan rate,
generating positive LDPs for the 2004 crop. Pricing strategies
for soybeans, then should be similar to those for corn. The
loan price provides a price floor for all unpriced soybeans
for which loan benefits have not been established.
Issued by Darrel Good
University of Illinois