August 4, 2003
WHAT SURPRISES LURK IN THE AUGUST CROP PRODUCTION REPORT?
The
USDA will release the first objective yield and production estimates for the 2003
corn and soybean crops on August 12. As was the case last year, there is a very
wide range of opinion about potential crop size this year, although both crops
are expected to be much larger than the 2002 crops. In 2002, the August production
estimates were smaller than expected for both corn and soybeans, but both crops
turned out to be larger than the August estimates. The January 2003 estimate of
the 2002 corn crop was 122 million larger than the August estimate, while the
January soybean estimate exceeded the August estimate by 102 million bushels.
In addition, the June 1, 2003 soybean stocks estimate suggested that the 2002
soybean crop was even larger than the January estimate.
Since
1980, the January soybean estimate was above the August estimate 13 times and
below the August estimate 10 times. For corn, the January estimate exceeded the
August estimate 14 times and was less than the August estimate 9 times.
For
the 2003-04 marketing year, the USDA has projected corn consumption at 9.95 billion
bushels, assuming abundant supplies and relatively low prices. With harvested
acreage of 72 million, the 2003 average corn yield would have to be below 138
bushels in order for consumption at the projected level to bring year-ending stocks
below one billion bushels. Current crop ratings suggest a yield above 138 bushels
per acre.
For soybeans, the USDA projects use during
the year ahead at 2.784 billion bushels, assuming abundant supplies here and in
South America and relatively low prices. With harvested acreage of 72.7 million,
the 2003 average yield would have to be below 38.2 bushels per acre in order for
consumption at the projected level to bring year ending stocks below 150 million
bushels. In general, the market anticipates a yield in excess of 38.2 bushels
per acre.
Expectations of large crops have allowed
corn and soybean prices to move sharply lower over the past two months. The average
spot cash of corn in central Illinois moved to a marketing year low on August
1, 2003, nearly $.50 below the level in mid-May. Cash soybean prices remained
above the low of October 2003, but declined by more than $1.00 from the market
year high in mid-May. New crop bids dropped below the loan level.
Corn
prices have declined enough that there is some potential for a small counter cyclical
payment for the 2002 crop. That determination will not be made until the average
price for August is known and the USDA determines the percentage of the crop marketed
each month from September 2002 through August 2003. Based on the average prices
reported through June, the mid-July price, and the previous five year average
monthly marketings (as a percentage of the total), the calculated weighted average
price for the first 11 months of the 2002-03 marketing price is $2.32. That is
exactly equal the price that would result in no counter cyclical payment. Actual
monthly marketings for 2002-03 may not alter this calculation much, since monthly
average prices through June were in a vary narrow range. A low average price in
August, then, could trigger a small payment, perhaps near $.02 per bushel. No
counter cyclical payment is anticipated for the 2002 soybean crop.
With
new crop bids slightly below the loan rate, there is little urgency in pricing
additional quantities of new crop corn and soybeans. An increase in the spreads
in new crop corn futures and a weakening of the new crop basis makes storage of
the 2003 corn crop more attractive. On August 1, the average harvest bid in central
Illinois was $.40 under July 2004 futures, compared to $.28 under in mid-June.
A large crop would likely lead to additional weakening of the basis and a larger
return to storage.
While new crop prices are not
attractive to sellers, end users of corn and soybean meal have an opportunity
to lock in prices at attractive levels.
[The
next issue of the Weekly Outlook will be issued on Tuesday, August 12, 2003]
