 
April 18, 2005
CORN GIVES UP PRICE GAINS, SOYBEANS RETAIN SOME
Corn and soybean futures prices rallied
sharply from early February through mid-March. Since then,
corn futures have lost most of the gain, but soybean futures
are holding on to more than half the gain.
In early February, corn and soybean futures were establishing
contract lows and appeared to be heading even lower. Over
the following 6 weeks, July 2005 corn futures rallied $.29
and July soybean futures moved up by $1.90. The soybean rally
was probably initiated by the effects of ongoing dry weather
in southern Brazil and by a strong export pace for U.S. soybeans.
The rally was supported by large speculative buying. The higher
corn prices were likely the result of that same speculative
buying. During that same 6 week period, the central Illinois
July corn basis weakened by an average of $.03, so that spot
cash prices increased by about $.26 at the very top of the
market. Soybean basis in central Illinois weakened by about
$.23 during that period, so that cash prices increased considerably
less than July futures.
On April 15, July corn futures settled at $2.1425, only $.0525
above the early February low and the July basis in central
Illinois remained weak, at about $-.22, $.04 weaker than in
early February. July soybean futures settled at $6.22, $1.16
above the February low and $.74 below the March high. The
central Illinois basis strengthened from mid March to mid
April, but the cash price was still $.225 under July futures.
Soybean prices continue to be supported by the small crop
in southern Brazil, good export demand, and evidence that
the 2004 U.S. crop may have been 25 million bushels smaller
than estimated. The USDA now projects U.S. soybean exports
for the 2004-05 marketing year at a record 1.08 billion bushels,
80 million more than forecast at the beginning of the marketing
year. The current strong pace of sales and shipments suggest
that exports may exceed the current forecast. If the 2004
crop was overestimated, year ending stocks could be under
350 million bushels, compared to the current USDA forecast
of 375 and the winter forecast of 460 million bushels.
The largest unknown for the soybean market is the likely size
of the 2005 U.S. soybean crop. Intentions are to plant 1.3
million fewer acres of soybeans this year than were planted
in 2004. Early season weather and weather forecasts are favorable
for timely planting of the crop. Summer weather and potential
disease and insect problems are uncertain and will keep yield
prospects in jeopardy for several months. A yield near 40
bushels per acre would produce a crop of about 2.9 billion
bushels, allow for some reduction in year ending stocks, and
point to a 2005-06 marketing year average price near $5.75
per bushel, $.15 to $.20 higher than the average for the current
year. Each 50 million bushel variation in production from
2.9 billion, would alter that average price projection by
about $.20 per bushel. Prices could become volatile again
during the growing season. The current contract high for November
2005 soybean futures of $6.505 is low by historic standards
and the trading range for that contract of $1.305 is also
small.
Corn prices are being pressured by prospects of large year
ending stocks and a good start to the 2005 planting season.
Near term weather forecasts suggest that much of the 2005
crop will be planted in a timely fashion. What about summer
weather? A trend yield near 145 bushels would produce a crop
near 10.75 billion bushels, allow for a significant decline
in year ending stocks, and point to a 2005-06 marketing year
average price of about $2.20, $.10 to $.15 higher than the
expected average for the current year. Each 100 million bushel
variation in production would alter that average price forecast
by $.02 to $.03 per bushel.
The contract high in December 2005 corn futures, $2.885,
was reached a year ago. The contract low of $2.265 was established
in January 20005. The trading range of $.62 is very small
by historic standards, suggesting a new high or low (both?)
before the December contract matures. Pricing opportunities
for the 2005 crop will be minimal until prices exceed the
CCC loan rate.
Issued by Darrel Good
Extension Economist
University of Illinois
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