HIGHER CORN AND SOYBEAN
Corn and soybean
prices have recovered most of the declines experienced in mid-January.
The average cash price of corn in central Illinois declined from $2.39
on January 8 to $2.22 on January 14, recovered to $2.375 on February
12, and was at $2.36 on February 14. March 2003 futures settled at $2.4525
on January 8, $2.305 on January 13, and $2.4025 on February 14. Similarly,
the average cash price of soybeans in central Illinois declined from
$5.755 on January 8 to $5.41 on January 16, but recovered to $5.665
on February 14. March 2003 futures settled at $5.82 on January 8, $5.49
on January 16, and $5.73 on February 14. All of the recent recovery
in soybean prices has been the result of higher soybean meal prices.
Oil prices continue to be pressured by last week's increase in the USDA's
projection of year ending stocks. New crop futures have been strong
as well. December 2003 corn futures have traded to the highest level
since last October and November 2003 soybean futures have traded to
the highest level since last September.
have recovered even in the face of a fairly dismal pace of exports and export
sales. As of February 6, the USDA reported that the total of shipments and outstanding
export sales were 14 percent smaller than the total of a year ago. For the current
marketing year, the USDA expects exports to be only 3 percent smaller than shipments
during the 2001-02 marketing year. The market continues to be hopeful that Chinese
competition will diminish during the last half of the 2002-03 marketing year.
Corn prices are receiving support from a rapid pace of domestic use of corn for
ethanol production. Last week, the USDA raised the projection of corn use for
fuel production during the current year by 20 million bushels, to a total of 920
million. That compares to use of 714 million bushels during the 2001-02 marketing
Soybean prices have responded to the continuation of the rapid pace
of exports to China. The USDA now projects soybean exports to all destinations
during the current marketing year at 940 million bushels, compared to 1.063 billion
last year. However, due to the discrepancy between USDA and Census Bureau estimates
of soybean exports so far this year (Census Bureau estimates are well below those
of the USDA), the USDA also increased the forecast of residual use of soybeans
by 15 million bushels. In effect, the USDA is projecting exports at 955 million
bushels, 10 percent less than exports of a year ago. As of February 6, 2003, cumulative
shipments were only 4 percent less than shipments of a year ago and total commitments
(shipments plus outstanding sales) were almost equal to the commitments of a year
ago. With year-ending stocks of soybeans projected at only 165 million bushels,
the normal seasonal pace of exports cannot be sustained. It may be that the availability
of South American soybeans will slow the pace of U.S. exports sufficiently so
that U.S. stocks are not threatened. The USDA now projects the current South American
harvest at 3.24 billion bushels, 70 million larger than the January projection
and 426 million bushels larger than last year's crop. Sixty-five percent of the
increase is expected to occur in Brazil. For the 2002-03 marketing year, the USDA
expects South America to account for 53 percent of world soybean exports, up from
42 percent last year. If the pace of U.S. exports and export sales do not slow
soon, higher prices may be required to force a reduction in use, either export
Both corn and soybean prices appear to be at an important juncture,
having recovered from January losses, but remaining below early January highs.
Seasonally, we are approaching the time frame that prospects for the 2003 U.S.
crops may determine the fate of prices, a point we have made in recent weeks and
one that is underscored by prospects of small stocks and some early concerns about
soil moisture conditions. Everything seems to be pointing to more volatile prices
over the next few months. Trading ranges to date have been relatively narrow.
December 2003 corn futures have had a trading range of only $.34. The smallest
range in the previous 32 years was $.54 (1987). Similarly, November 2003 soybean
futures have had a trading range of $.90. In the previous 30 years, the trading
range was less than $1.15 only once ($.91 for the 1986 contract). Since September
1, 2002, the trading ranges for the average cash price of corn and soybeans in
central Illinois have been $.575 and $.885, respectively. In the previous 30 years,
the trading range for cash corn prices during the 12 month marketing year was
$.575 or less only three times. The trading range for cash soybean prices was
less than $1.00 only twice.
It appears that the trading ranges for spot
cash prices in the current marketing year, and for new crop futures in particular,
will be expanded. The more difficult question is, in which direction? Given that
December 2003 corn futures have traded to a high of only $2.69 and November 2003
futures have traded to a high of only $5.43, it appears likely that the trading
range of those contracts will be expanded to the upside. It is a tougher call
for old crop prices, but new highs in the cash soybean market have a high probability.
It will be difficult for cash corn prices to exceed the early September 2002 highs.