farmgate: What Potential Do You See For Corn And Soybean Prices?
USDA’s Prospective Plantings Report and Grain Stocks Report on March 31 and the April 9 USDA Supply-Demand Report both were newsworthy in their own right. But when you combine the results of the three reports, Cornbelt farmers, who have both old and new crop corn and soybeans to sell, certainly have new information to integrate into their marketing plans.
The planting intentions report indicated that corn and soybean acreage would not be expanding by any great degree. The stocks report indicated inventories were not surprisingly large and the supply-demand report indicated consumption would grow and carryover would decline for both corn and beans.
Purdue Marketing Specialist Chris Hurt, writing in his latest marketing newsletter, says the acreage report indicates the 1 million acre cutback in corn from last year “will reduce the national production potential, although yields on these acres are much lower than the national average. But, there will also be less intensive application of inputs this year that will somewhat lower yield potential on the planted acres.” As a result, Hurt is more optimistic about corn prices for 2009. “This means the prospects of overproduction in a period of weak demand have been reduced and provided a price strengthening tone for grains and soybeans. In addition, it increases the upward price movement that will occur if growing season weather should turn adverse this spring/summer, or world economic activity is not as weak as anticipated.”
Hurt does not want farmers to believe we will return to the prices of last year, because of all of the economic factors that have diluted the demand, such as a stronger dollar, a weaker global economy, slower ethanol demand, and lower prices for crude oil. But he says the combination of reports restore the possibility of higher prices, for corn and beans to levels “that come much closer to allowing producers to cover total costs in 2009 than looked possible all winter.”
Hurt’s colleague Darrel Good at the University of Illinois says in his newsletter with the increased use of corn for ethanol production and somewhat of a decline in corn use by livestock feeders, total use could still approach 12.5 billion bushels. And that means there will need to be a good growing season, “Prospects for small year ending stocks of soybeans and declining inventories of corn during the 2009-10 marketing year means that a generally favorable 2009 growing season will be needed to avoid rationing of use next year. Not much is known about growing season weather prospects at this point. The current La Nina is receding and neutral La Nina/El Nino conditions are expected for the summer months, but the correlation between those conditions and U.S. growing season weather is very low. The cool, wet start to April in some producing areas threatens to delay the start of corn planting.”
Good says that current projections for corn carryover would put stocks at 14.1% of use, which is well above the 9.4% of 2003-04. However, he says soybeans stocks would be at 5.5% of use, compared to the 4.5% in 2003-04, the least in modern history. He adds that South American soybean harvests will be smaller than last year and, “For both corn and soybeans, the timing and extent of U.S. and world economic recovery will be important in determining the strength of demand and the level of consumption.”
Good says corn and bean prices have been climbing above the prices guaranteed by revenue crop insurance products. Those levels are $4.04 for corn and $8.80 for soybeans. If you have revenue insurance, your prices are protected at those levels and below, but the span of prices between those levels and current futures prices are not protected, says Good, “That risk is about $.15 for corn and near $.45 for soybeans. With so much riding on the size of the 2009 crops, prices could well trade in a wide range over the next few months. Opportunities to price a portion of those crops at prices above those currently offered will likely be available.” He says Dec corn has already pushed up to $4.37 and new crop beans to $9.34.
Summary:
With the global economy limiting the demand for US grain, the March 31 USDA acreage and stocks reports indicates that supplies are not particularly burdensome and new crop production may not be all that large, leading to the prospect that a recovering economy could help push grain prices higher. Farmers already have the chance to price corn and beans above the guarantee levels of revenue insurance, and that potential should continue.
Posted by Stu Ellis on April 14, 2009 12:32 AM to farmgate