URBANA, Ill. – Wheat, corn, and soybean prices, which have moved higher since mid-September, have implications for the production plans of farmers and perhaps for farm policy.
According to Darrel Good, a University of Illinois marketing specialist, one of the questions generated by high prices is: How will U.S. and world producers respond?
A second question is: How will Congress respond?
Good said that December 2006 corn futures reached a contract high of $3.17 Oct. 13, 81 cents above the mid-September low.
The rally the second week of October reflected the USDA’s October Crop Production report, Good said.
Supply vs. demand. “The 2006 U.S. corn crop is forecast at 10.905 billion bushels, 209 million below the September forecast,” Good said.
With consumption of U.S. corn during the current marketing year forecast at 11.89 billion bushels, year-ending stocks are forecast at a meager 996 million bushels, he said.
Market reaction. The USDA projects the marketing year U.S. average farm price in a range of $2.40 to $2.80. At the close of trade Oct. 13, futures prices translated to a marketing year average farm price of about $3.10 per bushel, said Good.
On the bean side. November 2006 soybean futures traded to $5.945 Oct. 13, about 58 cents above the mid-September low.
Good said that the USDA now projects the 2006 U.S. soybean crop at a record 3.189 billion bushels, 96 million larger than the September forecast.
Harvested acreage is forecast at a record 74.505 million.
“Even with consumption of U.S. soybeans forecast at a record 3.086 billion bushels, U.S. stocks are expected to grow from 449 million bushels on Sept. 1, 2006, to 555 million on Sept. 1, 2007,” Good said.
The USDA projects the marketing year average farm price in a range of $4.90 to $5.90. At the close of trade Oct. 13, the futures market projected an average farm price of about $5.90.
What about wheat? December 2006 wheat futures at Chicago traded to a contract high of $5.51 Oct. 12 and closed at $5.255 Oct. 13, $1.34 above the mid-September low.
July 2007 futures settled at $4.625, 40 cents above the mid-September low, but $.255 below the contract high established on October 4, 2006, Good said.
“Among the major wheat producers, only China is expected to have a larger harvest than last year,” Good said.
The largest drop in production, 55 percent, is expected in Australia.
Now what? So how will U.S. and world producers respond?
“In the United States, available crop land is generally fully utilized so there is little opportunity to expand total acres planted,” Good said.
The expectation is that acreage devoted to wheat and corn will increase and that acreage of most other crops will decline in 2007, but the magnitude of change can still be influenced by changes in price levels, with the exception of winter wheat.
Current futures prices for the 2007 corn and soybean crops favor corn production over soybean production in parts of the Corn Belt, said Good.
He added that the prospect of ample U.S. and world soybean stocks in contrast to small corn stocks and rapidly growing corn consumption suggests that corn acreage needs to increase at the expense of soybeans and other crops in 2007.
Action in D.C. And how will Congress respond? Good said projected prices are well above current support prices so that producers may receive only direct payments for the 2006 crops.
“The main issue is whether these higher prices are expected to persist. If so, Congress could respond by keeping commodity programs generally intact in order to minimize budget exposure,” Good said.
“Alternatively, Congress could view this as an opportunity to move the focus of policy away from price supports.”
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