July 28, 2003
CROP PRICES REACT
TO LATE SEASON WEATHER AND EXPORT ACTIVITY
2003 corn futures and November 2003 soybean futures declined sharply from mid-June
to mid-July on the basis of good crop ratings and expectations of large crops.
December corn futures dropped more than $.35 and established a new contract low
just under $2.10. November soybean futures declined about $.70 and traded to the
lowest level since March. The price decline in both contracts paused last week,
establishing a narrow, sideways trading range for the week.
halt to the recent price decline was generally related to some rethinking of potential
crop size. High temperatures in western growing areas, in particular, raised concerns
about corn, sorghum, and soybean crops. In parts of the eastern corn belt, excess
precipitation was more of a concern. The 2003 corn and soybean crops are still
expected to be large, but speculation of a corn crop over 10.5 billion bushels
and a soybean crop near 3 billion bushels has faded. Some forecasters are calling
for high temperatures to move into the corn belt during early August. The National
Weather Service forecast for the first week of August shows prospects for below
normal precipitation in most of the midwest and plains states. The USDA will release
the first objective yield and production estimates for corn and soybeans on August
The rapid pace of 2003 crop soybean export sales
also contributed to the halt in the price decline. Through July 17, the USDA reported
that 171 million bushels of U.S. soybeans had been sold for export during the
2003-04 marketing year. That represents 17.3 percent of the USDA's forecast of
next year's exports. About 28 percent of the new crop sales have been to China
and nearly 48 percent to unknown destinations, assumed to be China and/or the
European Union. The reasons for the large, early purchases by China are not clear,
but purchases are likely in reaction to lower prices and uncertainty about GMO
policy after September. The market is trying to determine if the large purchases
to date are an indication of larger than expected Chinese demand or mostly a change
in pattern of purchases.
New crop corn export sales
have been fairly routine. Cumulative sales as of July 17 totaled 61 million bushels,
or 3.3 percent of the USDA forecast of 2003-04 marketing year exports. Japan accounts
for about 60 percent of those purchases.
of wheat prices has differed from that of corn and soybeans. September futures
at Chicago declined about $.40 from early June to early July on the basis of expectations
of a large U.S. crop. However, prices moved sharply higher in July, with September
futures exceeding the spring high,. The sharp recovery in wheat prices reflected
concerns about the U.S. spring wheat crop as high temperatures moved into the
upper plains states and in anticipation of a robust export demand for U.S. wheat.
Expectations of growing export demand for U.S. wheat stem from expectations of
smaller crops in Europe, Russia, and the Ukraine and deteriorating crop conditions
Through July 17, the USDA reported U.S.
export commitments (shipments plus outstanding sales) at 259 million bushels,
14.5 percent above the commitments of a year ago. That increase is in line with
the 13 percent increase in exports for the year projected by the USDA. Through
July 17, however, commercial exports are trailing last year's pace by 2 to 6 percent,
depending on the source of export estimates.
USDA will update U.S. and world wheat production estimates on August 12. The estimate
for the U.S. spring wheat crop is generally expected to be below the July estimate.
However, that decline may be partially offset by another increase in the estimated
size of the U.S. winter wheat crop. The Canadian crop estimate will also be watched
Corn and soybean prices for harvest
delivery remain below the loan rate in many areas. Some producers have been inclined
to price some of the new crop at prices below the loan rate, anticipating that
prices would decline further into harvest. Weather and crop uncertainty suggest
that there is significant risk with that strategy.
wheat, the recent price increase has not resulted in a decline in spreads in the
Chicago futures market, but has been accompanied by a weakening basis in some
areas. In the west southwest district of Illinois, for example, the spot cash
price of wheat increased by $.25 from July 3 to July 25, while September futures
at Chicago increased by $.32. On July 25, the bids for January 2004 delivery in
west southwest Illinois averaged $.29 over the spot bid, generally exceeding storage
costs. The rapid post harvest recovery in wheat prices and the large carry in
the market offer an opportunity for some January sales.