'Sideways' pattern could develop in corn, soybean markets, analyst says
Corn and soybean prices continue to weaken, but could settle into a more "sideways" pattern as production prospects unfold, says a University of Illinois Extension marketing specialist.
"Still, large daily price movements can be expected," says Darrel Good in a university report.
December 2008 corn futures increased about $2 per bushel during the month of June, topping out just under $8. During the same period, November 2008 soybean futures rallied more than $3, topping out just under $16.37.
"Much of the June rally was related to weather conditions in the United States as excessive rainfall threatened acreage and yield in a wide area over the Midwest," he says. "That weather pattern followed a generally wet, cool May that resulted in late planting and slow emergence in some areas.
"Soybean prices were also supported by a generally strong export pace."
USDA export estimates indicate that soybean exports during June totaled about 57 million bushels, compared to about 45 million in June 2007. Continued strong demand by China and interruptions in exports from Argentina contributed to the large June exports.
"Prices of both crops turned lower in July," Good notes. "Corn prices have been pressured by a combination of larger-than-expected acreage estimates released by the USDA on June 30, improving crop conditions, and lower crude oil prices.
"As of July 13, the USDA estimated that 64% of the corn crop was in good or excellent condition, equal to the rating of a year ago. Lower crude oil prices have resulted in lower prices for ethanol. The average price of ethanol at Iowa plants declined from $2.82 per gallon on July 3 to $2.57 per gallon on July 18. At the close of overnight trade on July 21, December 2008 corn futures settled $1.74 below the contract high."
Good says that soybean prices have not declined as sharply as corn prices.
"While December 2008 futures are down by more than 20% from the contract high, November 2008 soybean futures at $14.40 are down 12% from the contract high," he says. "Soybean prices have been a little more resilient because of the uncertainty about Argentine exports and because of more concern about U.S. crop conditions.
"As of July 13, the USDA estimated that 59% of the U.S. crop was in good or excellent condition, compared to 62% in those categories a year earlier. While crop condition ratings are not much different than is typical for this time of year, the lateness of the crop and continuing dry weather in the Delta has created uncertainty about production prospects."
The same factors that have been contributing to the extreme price moves of the past four months will continue to be important for corn and soybean prices for the next two months, he adds.
"On the demand side, there are indications that Argentine export activity could return to a more normal state and U.S. soybean exports have slowed in July," he says. "After adjusting for larger Census Bureau estimates compared to USDA estimates, shipments during the last 6.5 weeks of the marketing year will need to average 10 million bushels per week to reach the USDA forecast of 1.145 billion for the year.