June 16, 2003
CORN: THE 2003 GROWING
SEASON AND BEYOND
It is generally accepted that
the development of the U.S. corn crop is the most important price factor at this
time of year. That seems to be the case again this year, with recent price volatility
at least partially explained by changing weather conditions, weather forecasts,
and crop condition ratings. As of June 8, the USDA reported 91 percent of the
U.S. corn crop planted, compared to 88 percent last year and the five-year average
progress of 94 percent. The slowest progress, on a statewide basis, was in Pennsylvania
and progress was slower than average in Indiana, Kentucky, Michigan, and Wisconsin.
As of June 8, 69 percent of the crop was rated in good or excellent condition
and only 6 percent of the crop was rated in poor or very poor condition. The ratings
a year ago were 59 percent, good or excellent and 9 percent, poor or very poor.
Recent precipitation along with higher temperatures should result in continued
improvement of crop conditions. The short term precipitation and temperature forecasts
are also generally favorable for crop development.
widespread concerns about crop progress, corn prices will have a tendency to drift
lower, unless there are other positive price factors. In the near term, the market
will examine the USDA Acreage and Grain Stocks reports to be released on June
30 to see if there are any surprises relative to planted acreage or June 1 inventories.
Based on known use to date and USDA projections for the year, June 1 corn inventories
should be near 3 billion bushels, well below the 3.6 billion bushels of a year
ago. The relative strength of cash corn prices in recent weeks in the face of
a slow export pace gives the impression that corn stocks are tighter than the
calculations suggest. Perhaps the strong basis just reflects reluctance of producers
to make large sales of old crop corn. The June 30 Grain Stocks report should provide
Longer term, corn prices will be influenced
by developments in Chinese corn production and the magnitude of Chinese corn exports.
Even with modest sized crops, China has been an aggressive exporter of corn for
the past two seasons. In 2001-02, the Chinese corn crop was estimated at 4.49
billion bushels and marketing year exports totaled 340 million bushels. The 2002
crop is estimated at 4.775 billion bushels and marketing year exports are projected
at 530 million bushels. For the 2003 crop year, the USDA estimates Chinese production
potential at only 4.645 billion bushels, down about 160 million bushels from the
May estimate. Chinese corn exports during the 2003-04 marketing year are projected
at 315 million bushels. The 215 million bushel expected decline in Chinese exports
is the main reason the USDA is projecting a 250 million bushel increase in U.S.
corn exports during the 2003-04 marketing year. Most of that increase would likely
be in shipments to South Korea. If current unfavorable weather conditions result
in an even smaller Chinese corn crop, U.S. export prospects might be enhanced
Beyond the 2003-04 marketing year, Chinese
production and trade policy will continue to be important. It appears that China
will attempt to expand soybean production, at the expense of corn production,
to help meet its growing appetite for soybean meal and oil. Smaller corn crops
and the elimination of export subsidies could result in further declines in Chinese
corn exports over the next few years. Some analysts even expect China to become
a modest net importer of corn in the near future.
now, it appears that corn prices will continue in a choppy but generally sideways
pattern. December 2003 corn futures have traded in a range of nearly $.20 since
early May, but prices have stayed within the trading range established since September
2002. The high in September was $2.60 ($.09 below the contract high) and the contract
low established in March 2003 was $2.305. If crop conditions remain favorable,
the contract low would likely be challenged, particularly if speculative traders
give up the long side of the market. It is a little early, however, to conclude
that the 2003 crop is out of danger.
It is within
this period of production uncertainty that producers must make decision about
pricing the 2003 crop. Two general alternative approaches might be considered.
One is the purchase of put options in order to protect the current price level
and partially benefit from higher prices should they occur. If higher prices do
develop, producers would then have to decide when to price the crop. A second
approach is to spread sales of a portion of the expected crop during the summer
growing season in order to capture the average price.