Can corn hit $3, and beans $5.50 by June 15?
It's not often that corn and soybean prices move different directions, as usually weather that impacts soybeans also impacts corn the same way with the growing regions very similar. However, last Friday's USDA report created the possibility of a 40 cent rise in corn prices at the same time as soybeans could drop 60 cent. Yes, under extreme circumstances it is possible for these two commodities to move in different directions.
The first event that could cause this unusual price movement has already occurred via the USDA March 31 intended acreage report, and increases the Pro Ag guesstimate to a 50% chance that we could see $5.50 Nov. soybeans (a 60c price drop from Friday's report to June 15) and $3 Dec corn (a 40c rise from Friday's report to June 15.)
USDA shocked the grain market recently with one of the largest acreage surprises since the 1983 PIK program. Traders vastly underestimated the impact of high energy costs on growers' 2006 planting considerations, guessing that only a 1% drop in corn acreage and 2% rise in soybean acreage would occur. Instead, the actual report found 5x the corn acreage cut, and 4x the soybean acreage rise. That surprise will largely impact the projected carryout stocks in future USDA reports, with Pro Ag calculations indicating a 400 mb cut in corn 2006/07 carryout (to 1.3 billion) and a 100 mb hike in soybean carryout (to 670 mb). We need to reverse this trend, or in 1 year the soybean carryout will match corn!
Obviously this cannot happen, so the market's job will be to make sure we don't keep increasing bean carryout and cutting corn carryout, and that will mean rising corn and declining soybean prices. The push and pull of this opposite price direction will be fought out daily in markets (as it has this week), as some people will not believe that this can continue to happen. But happen it must, as now its up to price to allocate the corn shortage and bean surplus through the demand side of the market. Lower bean prices will mean more U.S. soybean use, and higher corn prices will mean lower corn use. That's exactly what the market needs to accomplish over the course of the next year.
Some people believe prices can move enough to change farmers planting intentions yet in 2006, attracting more corn and subtracting from soybean acreage. Acreage shifts due to price changes are generally not very substantial historically. Typically acreage shifts from the March 31 report have a lot more to do with weather (late planting means more soybean acreage, early planting means more corn acreage) than with price. Pro Ag believes weather right now supports that happening in 2006, which brings up the second factor that can support $3 corn and $5.50 beans - adverse spring planting weather.
If corn planting is delayed this spring such that planting progress of corn is behind average through the planting season, its likely that even greater corn price rises and soybean price declines occur. What happens if another million acres of corn switch to soybeans due to late planting in 2006? So far, the 2006 spring has been wetter than normal in the corn belt, not drier than normal.