Weekly commodity outlook: Prices could become more volatile

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URBANA, Ill. – Corn and soybean prices could become more volatile beginning in March as the market refocuses on U.S. production prospects for 2003, said a University of Illinois Extension marketing specialist.

“Those holding inventory, or other long positions, in anticipation of a price rally should likely plan to hold those positions into the spring,” said Darrel Good.

“An earlier rally would be welcome, but is currently not expected.”

Recent movements. Good’s comments came as he reviewed recent movements of corn and soybean prices.

“If you blinked, you missed the post-harvest recovery in corn prices,” he noted.

“The average cash price of corn in central Illinois reached a late harvest low of $2.30 on Nov. 11, rebounded to $2.40 on Nov. 19, and then declined to $2.27 1/2 on Dec. 5.

“The recent price action was not unexpected given the very strong basis during the harvest period and the struggling corn export market.

“The carry in the futures market for old crop corn increased and the average basis strengthened to minus-four cents under March futures.”

More typical. Good said that post-harvest price action in the soybean market has been more typical.

The average central Illinois cash price bottomed in early October, rallied about 65 cents into early November, and then declined about 15 cents into early December.

“The post-harvest recovery was driven more by an increase in futures prices than in the strengthening of the basis,” said Good.

“The higher futures prices reflected a rapid rate of exports and concerns about the South American crop.”

Not expected. Late changes from the November projections for corn and soybeans are not expected. However, the pace of soybean exports is larger than that implied by the USDA’s projection for the year.

At 890 million bushels, 2002-03 marketing year exports are expected to be 16.3 percent smaller than exports of a year ago. Through Dec. 14 – 14 weeks into the marketing year – shipments were running only 6 percent behind the pace of a year ago.

As of Nov. 28, however, unshipped sales of soybeans totaled only 275 million bushels, 12 percent less than on the same date last year.

Final estimate. On Jan. 10, the USDA will release the final estimate of the size of the 2002 U.S. corn and soybean crops.

“Again, large changes from current projections are not expected, but the late soybean harvest in the South may have resulted in above-normal field loss or unharvested acreage,” said Good.

“In addition, some believe that the estimate of harvested acreage of corn might be reduced as well, to more fully reflect the impact of drought in some major corn producing areas.”

Also on Jan. 10, the USDA will release an estimate of U.S. winter wheat seedings. Typically, this report might have only small implications for corn and soybean prices.

“This year, however, a large increase in winter wheat seedings is expected,” said Good.

“Such an increase would have implications for the acreage available for spring-planted crops.

“Questions about the mix of spring-planted crops will remain an open issue, but the wheat report will be an early indicator of total acreage of spring crops.”

Crop consumption. While USDA reports will provide important information to the market place, most attention will remain on the rate of consumption of the crops.

Some negative demand news has been received in recent weeks.

“This has been in the form of smaller domestic livestock inventories, continued large shipments of Chinese corn, larger estimates for Canadian crops, and some improved weather prospects in South America,” said Good.

“Positive news includes the large Chinese appetite for soybeans, a record pace of ethanol production, and confirmation of smaller U.S. inventories of soybean oil.”

Average cash prices. The average cash price of corn during the first quarter of the 2002-03 marketing year was near $2.40, equal to the midpoint of the USDA’s projection of the marketing year average price.

The average cash price of soybeans during the first quarter was about $5.40 per bushel, also equal to the midpoint of the USDA’s projection of the marketing year average price.

“It may be that both corn and soybean prices will trade in a relatively narrow range during the winter months, particularly if the South American soybean crop makes normal progress,” said Good.

“The Jan. 10 USDA reports have the most potential to give new direction to prices.

“In addition to final crop estimates and winter wheat seedings, those reports will include the estimates of Dec. 1, 2002 U.S. crop inventories. Expectations of South American production will be firmer by that time as well.”

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