The most important thing for corn, soybean markets
The most important factor in the corn and soybean markets for the next 6 to 8 weeks is the potential size of the 2006 U.S. crops, according to a University of Illinois Extension press release.
Darrel Good, University of Illinois marketing specialist, said the current conditions raise concerns about potential yield.
With declining crop condition ratings, large areas of moisture deficits, and a period of high temperatures, corn and soybean prices appear to be building in the probability of average yields falling below trend value.
"It is a useful exercise to try to determine the average yield that is being reflected by the market at any given time," Darrel Good said. "With considerable uncertainty on the demand side and inexact relationships between supply, consumption, and price this exercise does not produce a precise answer, but can provide some guidance for producers in making pricing decisions."
Good's comments came as he reviewed the corn and soybean markets in his weekly outlook.
The USDA calculates the 2006 trend yield for corn at 149 bushels. A yield at that level would produce a crop of about 10.74 billion bushels.
Consumption of U.S. corn is expected to grow from 11.175 billion bushels this year to 11.735 billion next year, leaving September 1, 2007 inventories at 1.077 billion bushels, or 9.2 percent of expected consumption.
"Based on the relationship between the year ending stocks-to-use ratio and marketing year average farm price since 1998-99, that scenario would be expected to produce a 2006-07 marketing year average price near $2.45," said Good. "The USDA projects the average in a range of $2.25 to $2.65."
"Assuming that the historic relationship between futures prices and the average monthly cash price received by farmers holds for the year ahead, and that producer sales are distributed in a typical fashion, the market says the average farm price will be near $2.75 during the 2006-07 marketing year," he said.
Good added, "An average price of $2.75 implies a year-ending stocks-to-use ratio of 7.2 percent (845 million bushels) which implies a crop of 10.508 billion bushels (assuming use of 11.735 billion bushels). A crop of that size implies a yield of 145.9 bushels per acre, 3.1 bushels below trend."
Based on the historic relationship (1986 through 2005) between the U.S. average yield and the percent of the crop rated good or excellent at the end of the growing season, a yield of 145.9 bushels would require that the percent of the crop rated good or excellent drop from 63 percent on July 9 to 57 percent by the end of the season.
"In the past 7 years, however, the U.S. average corn yield has been higher than suggested by crop ratings," said Good. A year-end rating of 57 percent good or excellent last year, for example, resulted in an average yield of 147.9 bushels. Allowing for a continued increase in trend yields, a crop rating of 53 percent good or excellent at the end of the current season might translate into an average yield of 145.9 bushels."