Watch northern hemisphere for corn, soybean market direction, specialist says
Increasingly, the dominant factor determining corn and soybean prices will be 2008 production prospects in the northern hemisphere, says a University of Illinois Extension marketing specialist.
"Beyond acreage, growing season weather in the northern hemisphere will be very important in determining crop size," Darrel Good says in a university report. "U.S. production has benefitted from unusually favorable growing conditions since 1996. While regional weather problems have been experienced, the widespread weather stress experienced in years like 1980, 1983, 1988, 1991, and 1995 have been avoided.
"Under current conditions of low stocks and strong demand, low yields in 2008 could create the need to reduce consumption beyond what is already occurring in the U.S. livestock industry."
"In general, prices of these commodities, particularly corn and soybeans, have been very volatile since mid-January as the market reacts to new information in these markets, as well as the energy, currency, and financial markets," Good adds. "Prices are being influenced by a wide array of complex factors."
However, northern hemisphere production prospects in 2008 are emerging as the key.
World wheat production reached a record 628.6 million tons in 2004-05 and remained large at 621.5 million tons in 2005-06. Production dropped to 593.2 million tons in 2006-07 and reached only 603.6 million tons in 2007-08.
"For the year ahead, there is a general expectation that production will rebound due to increased seeded area, particularly in the European Union," he says. "For the United States, winter wheat producers have reported an increase in seedings of only about 1.6 million acres, mostly soft red winter wheat. Spring wheat producers are expected to increase acreage following the 1.3 million cut last year.
"In addition to increases in the northern hemisphere, production in Australia is likely to rebound from the extremely low levels of the past two years. Early projections by the USDA show prospects for world production to rebound to 645 to 655 million tons in 2008-09. Production at that level would allow some significant rebuilding of world wheat stocks and would result in a further decline in wheat prices."
For corn and soybeans, the immediate focus will be on production prospects in the United States. The USDA will release its annual Prospective Plantings report on March 31.
"Expectations for corn and soybean planting intentions are in an extremely large range as analysts try to anticipate how producers will respond to the combination of high commodity prices and escalating input costs," says Good.
"A decline in corn acreage and an increase in soybean acreage are expected, but the market will have an opportunity to influence final planting decisions. Last year, for example, area planted to corn exceeded March intentions by 3.15 million acres and area planted to soybeans was 3.51 million bushels less than indicated in March."
A shortfall in corn production might be more problematic than a shortfall in soybean production, he added.