June 4, 2001
WEATHER AND CROP CONCERNS EMERGE
With adequate U.S. stocks and record
South American production, corn and soybean prices have remained
under pressure during the early part of the 2001 U.S. crop year.
Most have expected prices to continue to languish unless crop
concerns developed. After trading to a contract low of just under
$1.88 on May 29, July 2001 corn futures moved about $.10 higher
by the close of trade on June 1. December 2001 futures rallied
by a similar amount. From the low of May 29 to the high on June
1, July 2001 soybean futures rallied $.22, but closed off the
highs. November 2001 futures followed a similar pattern.
Last week's small rally began in
soybeans, with a continued high rate of consumption providing
fundamental support. Lingering cool, wet weather in the U.S. raised
concerns about the completion of corn and soybean planting in
the U.S. Some land intended for corn in Wisconsin, Minnesota,
and North Dakota may not get planted to corn due to the lateness
of the season. Those areas may be seeded to soybeans, if weather
permits. Cool, wet conditions also raised concerns about the progress
of the crops, both corn and soybeans, already seeded and emerged.
The USDA's weekly report of crop conditions, to be released after
the market closes on June 4, is expected to show further deterioration
in overall crop ratings for corn and soybeans.
Current weather and crop conditions
in the U.S. do not represent a significant threat to the crop,
if warmer weather develops soon. Ample moisture along with warmer
weather would result in rapid crop growth and improvement in crop
ratings. However, below normal temperatures are expected to continue
in much of the growing area for most of this week. In addition,
other crop concerns are unfolding around the world. Three areas
of dry conditions are especially important. These include the
corn growing areas of China and portions of the wheat growing
areas in Canada and Australia. China suffered dry conditions and
a small corn crop last year. A second consecutive small crop remains
a possibility. The dryness in Canada and Australia and the threat
to the wheat crops there adds to the supply concerns generated
by prospects of a significant cut in U.S. wheat production this
year. For the first time in nearly six years, weather and crop
concerns extend beyond more than one or two major production areas
and impact more than one major crop.
The current supply concerns may
be sufficient to prevent prices from moving below recent lows
in the near term. The dry conditions in parts of Canada, Australia,
and China are of more concern than the cool, wet conditions in
the U.S. Precipitation is always preferred to dry weather. However,
the slow start to the U.S. growing season in some areas for both
corn and soybeans suggests that a full growing season will be
required for all of the crops to reach maturity. The current situation
has some similarities to 1996, when a wet spring delayed planting
and required a fair amount of replanting in some areas. That year,
most areas enjoyed a later-than-normal first freeze so that crops
had an extended growing season. Both average yields and production
were relatively large in 1996.
The potential price increase associated with current supply concerns
is difficult to judge. Changing weather and crop conditions will
make production potential uncertain for two or three months. The
end user's response to supply concerns will also be important.
Current prices are low enough that widespread crop worries could
trigger a significant amount of commercial buying. If crop concerns
do continue, December 2001 corn futures and November 2001 soybean
futures should be able to make additional advances from the recent
lows. Some simple technical indicators suggest some targets for
such a recovery. For December corn futures, these targets are
roughly in $.10 increments from $2.20 to the early winter high
around $2.60. For November 2001 soybean futures, these targets
are roughly in $.25 increments from $4.50 to $5.25.
If the weather concerns fade, new lows in both the corn and soybean markets
are possible. Weather markets can present selling opportunities, but are difficult
to judge. For new crop corn, a move above the CCC loan rate will force producers
to make pricing decisions. Some might want to consider using options, or minimum
price contracts, to protect a price above the loan rate.
University of Illinois