August 9, 1999
PUTTING CORN AND SOYBEAN CROP
SIZE IN PERSPECTIVE
Corn and soybean
prices reached a recent low in early July on the basis of excellent
crop ratings and market talk of record U.S. average yields in
1999. High temperatures in July and continued dry conditions in
some growing areas, primarily the eastern corn belt, resulted
in a quick price rally. December corn futures moved up $.345 while
November soybean futures moved almost $.92 higher. Expectations
of a 10 billion bushel corn crop have given way to estimates in
the 9.0 to 9.3 billion bushel range. Estimates for the soybean
crop have dropped from 3 billion bushels to estimates in the range
of 2.8 to 2.9 billion bushels.
The USDA will release
its first objective yield and production estimates on August 12.
For corn, many believe that the August production estimate will
reflect maximum production potential. Poor August weather could
result in a smaller crop, while favorable weather would not be
expected to add much yield potential. For soybeans, yields may
be more sensitive to August weather. Weather so far in August
has been mixed. The corn belt has experienced seasonal temperatures,
with precipitation remaining generally favorable in western and
northern growing areas and below normal in eastern areas.
The two most recent
years which experienced an unfavorable end to the growing season
were 1991 and 1995. In 1991, the USDAs August Crop Production
report reflected the crop damage. The corn yield and production
estimates changed very little in subsequent reports. For soybeans,
the estimates declined in September and increased in subsequent
reports. The January production estimate was 117 million bushels
(6 percent) larger than the August estimate.
In 1995, corn yield
and production estimates declined from the August report through
the November report and then were unchanged in January. The November
yield estimate was 11.9 bushels (9.5 percent) below the August
estimate. As a result, the production estimate declined by 748
million bushels (9.2 percent). For soybeans in 1995, the yield
and production estimates increased in September, and then declined
steadily through the January report. The January yield estimate,
however, was only 1.5 bushels (4 percent) smaller than the August
estimate. The January production estimate was 94 million bushels
(4 percent) smaller than the August estimate.
Perhaps it is useful
to put the prospective size of the 1999 crop in context of the
level of expected consumption and the impact on carryover stocks.
In its preliminary forecast last month, the USDA projected corn
consumption in the 1999-00 marketing year at 9.41 billion bushels.
It now appears that the 1999 crop will be smaller than 9.4 billion
bushels, suggesting that year ending stocks will be reduced from
the level of stocks at the end of the current marketing year,
currently projected at 1.744 billion bushels. To reduce stocks
below 1.5 billion bushels (assuming 9.41 billion consumed) the
1999 crop would have to be less than 9.166 billion bushels. Stocks
at the end of the 1997-98 marketing year were at 1.308 billion
bushels and the seasons average price was $2.45. To reduce
stocks to 1.3 billion bushels, the 1999 corn crop will likely
have to be under 8.97 billion bushels.
For soybeans, the
USDA has projected consumption during the year ahead at 2.744
billion bushels. For now, it appears that production potential
is above that level. If so, stocks would be expected to accumulate
from the very large (395 million bushels) level expected at the
end of the current marketing year. For the 1990-91, 1991-92, 1992-93,
and 1994-95 marketing years, year ending stocks ranged form 278
to 335 million bushels (averaged 309 million) and the seasons
average price ranged from $5.48 to $5.75 per bushel (averaged
$5.60). Based on the recent relationship between average price
and carryover stocks, year ending stocks next year would probably
have to decline under 325 million bushels to result in an average
price above $5.50.
Assuming a continuation
of a weaker than normal basis, the corn futures market is currently
reflecting a 1999-00 marketing year average farm price of about
$2.20 per bushel. It appears that a significant decline in carryover
stocks has already been factored into the corn market.
The current soybean
futures market for 1999-00 reflects a seasons average price
of about $4.70. The soybean market still reflects expectations
that year ending stocks will increase slightly next year.
Issued by Darrel
University of Illinois