October 8, 2001
HARVEST LOWS NEAR?
The average spot cash price of corn
in central Illinois traded to a marketing year low of $1.835 on
October 2, 2001. That price was nearly $.20 below the marketing
year high established on September 13. The basis has remained
fairly steady near -$.25, about $.05 stronger than the basis of
a year ago. December 2001, corn futures traded to a low of $2.0825
on October 3, only $.06 above the contract low established in
The average spot cash price of soybeans
reached a marketing year low of $4.26 in the first week of October.
That price was $.455 below the marketing year high reached on
September 4. The low price to date is similar to the marketing
year low of the past two years ($4.145 and $4.295, respectively).
The central Illinois basis is averaging about -$.24 per bushel,
near the level of a year ago.
With harvest progressing rapidly
and with smaller total crop production resulting in more ample
storage capacity, it appears that the prices of corn and soybeans
are nearing seasonal lows, or perhaps a marketing year low. Over
the past 28 years, the marketing year low price of corn in central
Illinois has been reached in the first quarter of the marketing
year 13 times. In 12 of those years, the low was reached in September
or October. The low in 1975-76 was established in November. Over
the same time period, the average cash price of soybeans reached
a marketing year low during the first quarter of the year 12 times.
The latest data for the low was November 1.
If the lowest spot cash price of
corn is established in the fall time period, history would suggest
that the marketing year high spot cash price will most likely
be $.50 to $.75 above the lowest price. For soybeans, history
would suggest that the highest spot cash price would be $1.00
to $1.25 above the lowest price. Even if the marketing year low
cash price is not established in the fall, a post-harvest price
recovery would be expected, with new lows not likely until the
spring or summer of 2002.
The USDA's October Crop Production
report, to be released on October 12, may be important in determining
if seasonal lows in the cash market have been established, or
will be established soon. Private forecasts for the size of the
2001 corn crop continue to vary from 100 million bushels below
the USDA's September forecast to 100 million bushels above the
September forecast. This is a relatively small range, but with
year ending stocks expected to declined significantly, 100 million
bushels is important. A smaller forecast on October 12 would suggest
that a seasonal low has been established, while a larger forecast
would suggest the low is yet to come, likely this month. Based
on late season crop condition ratings and yield reports, we expect
the USDA October yield and production forecasts to be just a little
larger than the September forecasts. This would be similar to
the pattern of 1989, 1991, 1997, and 1999, when slightly smaller
September forecasts were followed by slightly larger October forecasts.
For soybeans, we expect the October crop forecast to be slightly
smaller than the September forecast, although recent history shows
that a smaller September forecast is followed by a smaller October
forecast less than half the time.
The demand picture for corn and
soybeans will also be influential in determining the level and
timing of seasonal lows in prices. More importantly, the rate
of use of these crops will be important in determining the magnitude
and timing of a post harvest recovery in prices. The lack of expansion
in hog numbers and the expected decline in placements of cattle
into feedlots point to a stable situation for feed use of corn
and soybean meal. For corn, the market will follow the growth
in ethanol production and the rate of export sales for indications
of consumption. For soybeans, the market will follow the rate
of export sales, the development of the South American soybean
crop, and the size of other vegetable oil crops.
Corn export sales accelerated in
the last half of September and are now running only 5 percent
behind the pace of a year ago. Accumulated sales of soybeans for
export are now running about 5 percent ahead of last year's pace.
China's decisions relative to the policy on importing of GMO soybeans
will be important to overall soybean export demand.
Producer pricing decisions will
continue to be tied to the use of the marketing loan program.
The likelihood of a seasonal low in October suggests establishing
the loan deficiency payment (LDP) and owning a portion of the
crop for a post-harvest price recovery. The carry in the corn
market suggests that establishing the LDP and pricing a portion
of the crop for later delivery might also be considered. For soybeans,
the lack of carry in the market suggests that ownership in the
form of basis contracts or futures might be lower cost than physical
storage. The risk of lower prices (and margin calls with futures),
however, would still be present.
Issued by Darrel
University of Illinois