May 24, 2004
CONTINUED VOLATILITY FOR CORN AND SOYBEAN PRICES
Twists and turns in market fundamentals for corn
and soybeans continue to unfold. Uncertain prospects for the
U.S. crops along with an evolving demand picture promise to
keep prices volatile for some time.
The U.S. corn crop is off to a fast start, with planting
generally occurring earlier than normal and early growth occurring
under very favorable conditions. The market generally believes
that planted acreage exceeded March intentions of 79.004 million
acres and early talk has been about prospects for a record
yield in 2004. A few whispers about prospects for an 11 billion
bushel crop have been heard, based on forecasts of a generally
favorable summer weather pattern. Now, however, the focus
is on the current heavy rainfall patterns in parts of the
northern corn belt and implications for crop loss and the
need to replant in some areas. Excessive rain may have offset
some of the potential benefits of early planting. Where precipitation
levels have been more normal, crops remain in very good condition.
The USDA will begin its weekly reports of crop conditions
this week. Those reports will be followed closely in assessing
yield and production prospects.
On the demand side of the corn market, exports are now back
on the front page, but are providing mixed signals. The pace
of new export sales for delivery during the current crop year
remains robust. Unshipped sales as of May 13 totaled 385 million
bushels, nearly 70 percent larger than outstanding sales of
a year ago. The largest increase in sales is to "unknown"
destinations. Those sales total 146 million bushels and the
market is eager to see if any of those sales are to China.
When added to actual exports, large outstanding sales mean
that export commitments account for nearly 84 percent of the
projected level of exports for the year. That is about equal
to the level of commitments of a year ago.
The concern about corn exports is the recent slow pace of
actual shipments. For the six weeks ended May 20, weekly shipments
averaged only about 31 million bushels. To reach the USDA
projection of 2.05 billion bushels for the year, shipments
need to average about 46 million bushels per week for the
final 14.5 weeks of the marketing year. Last year, the average
for that period was 31 million bushels.
The U.S. soybean crop is also off to a quick start in most,
but not all, areas. As of May 16, the USDA reported that 46
percent of the soybean area was yet to be planted. The immediate
concern is that planting will now be delayed in areas of heavy
rainfall and that some replanting may be required. Delays
may alter early expectations for a trend yield in 2004.
For soybean demand, much of the recent focus has been on
changing conditions in China. Last fall, China bought U.S.
soybeans at an extraordinary pace. It was generally expected
that strong demand in China would also result in a rapid pace
of imports of South American soybeans. However, soybean meal
demand has not been as robust as expected, Chinese crush margins
have dropped sharply, and China has refused some shipments
of Brazilian soybeans. At the same time, China has purchased
relatively large quantities of U.S. soybeans for delivery
in the 2004-05 marketing year. As of May 13, those sales totaled
74 million bushels. An additional 31 million bushels had been
sold to "unknown" destinations, perhaps China. Eight-five
percent of all current export sales for 2004-05 are to China
or "unknown" destinations.
The immediate market reaction to excessive rainfall in some
growing areas will likely be modest. In general, potential
for large crops in 2004 is still in place. Hot, dry conditions
in July and August are much more detrimental to production
prospect than are wet conditions in May. Additionally, corn
prices may be more responsive to early weather and crop conditions
than soybean prices. It is still relatively early in the soybean
growing season and there is time to recover from planting
delays or replanting. In addition, an apparent softening of
Chinese soybean demand and the likely increase in South American
soybean area may moderate early concerns about the U.S. crop.
For corn, however, significant flooding may have more production
implications as the benefits of early planting are reduced
in some areas. In addition, the demand picture for corn remains
Both corn and soybean prices are expected to remain volatile
and perhaps in a wide trading range during the remainder of
the growing season. Such volatility will provide additional
opportunities for pricing a portion of the 2004 crop.
Issued by Darrel Good
University of Illinois