Market Outlook: Corn and bean confusion

URBANA, Ill. – While the market is trying to figure out potential corn and soybean acreage, yield, and production, demand will continue to have some impact on price movement.

“Soybean and soybean meal consumption remain at a high level,” said University of Illinois Extension marketing specialist Darrel Good. “Prices will have to remain generally low as long as prospective and actual supplies are large.

“Conversely, annual supplies will have to continue to be large to keep prices under the severe pressure of the past three years. The market will be looking for some crack in that large supply scenario.”

Wheat watch.

Good’s comments came as he reviewed recent market actions.

“This is the time of year when crop markets tend to be dominated by production prospects, particularly the potential size of U.S. crops,” said Good. “However, the market never really forgets about the demand side of the price equation. The current wheat market is an example.

“Information flowing to the market this past week generally confirmed expectations of a significant reduction in U.S. winter wheat production this year. Wheat prices continued to struggle in the face of what appears to be fundamentally supportive information. It may be that the market is somewhat skeptical of private production estimates.

“Alternatively – or in addition – the market may be reflecting an overall weak demand scenario, suggesting that even with a sharp reduction in U.S. output, world supplies are adequate to meet current demand prospects.”

A third alternative is that the current large carry in the wheat price structure may be sufficient to reflect a sharp decline in U.S. wheat production, said Good.

The year-over-year carry – May 2001 to May 2002 – is about 55 cents per bushel at Chicago, 47 cents at Minneapolis, and 37 cents at Kansas City. “The nearly 21 percent carry at Chicago is particularly large,” Good said.

Eye on the sky.

The divided nature of moisture conditions provides some confusion and uncertainty for the corn and soybean markets. Excessive moisture in parts of the western and northern growing areas once again raised the issue of potential switching of intended corn acres to soybeans.

Dry conditions in parts of the eastern and southeastern growing areas have resulted in rapid planting progress, but raised concerns about germination and early growth prospects. In general, history suggests that producers are reluctant to switch corn acres to soybeans beyond their early intentions.

Other factors besides corn and soybean switching will impact the final acreage number in relation to March intentions.

One of these factors, Good said, is whether the March Prospective Plantings report accounts for all of the crop land acreage.

“In some years it clearly has not. This year appears to be one of those years when planted acreage of all crops will exceed March intentions, even before accounting for possible replanting of failed wheat acres.

Good said the March report appeared to leave several million acres of crop land not accounted for. That is, intentions for all crops fell well short of actual acreage planted in 2000. The increase in acreage to be harvested for hay does not explain the shortfall. Similarly, increased participation in the Conservation Reserve Program will not likely account for all of the apparent shortfall.

For corn, year-ending stocks will be relatively large, so that relief from large supplies will have to come from the new crop.

“Reduced acreage is the most likely source of relief,” said Good. “Like wheat, however, the large carry in the corn market means that some improvement in the supply and/or demand fundamentals will be required to support those higher prices for the 2001-02 marketing year. The May 2001 to May 2002 carry in the futures market is currently 44 cents per bushel, or 21.7 percent.”