September 7, 1999
WHAT SIZE CORN AND SOYBEAN CROP
IS THE MARKET TRADING?
Private estimates of the size of
the 1999 U.S. corn and soybean crops vary widely. Estimates reported
in the farm news range from 9.199 billion to 9.392 billion bushels
for the corn crop and 2.716 to 2.817 billion bushels for the soybean
crop. Prices, particularly for soybeans, have moved higher as
weekly crop conditions reports show a continued deterioration
in crop conditions. November 1999 futures have moved above the
highs reached immediately before the August Crop Production
report. December 1999 corn futures are still below the August
pre-report high of $2.435.
For soybeans, the price increase
still leaves prices below the Commodity Credit Corporation (CCC)
loan rate so that it has not resulted in a net increase in prices
for the 1999 crop. In fact, for those soybeans which have been
forward priced for delivery after harvest, the price increase
has reduced the potential loan deficiency payment (LDP) and resulted
in a lower net price. The benefit of higher prices has accrued
primarily to owners of 1998 crop soybeans not under CCC loan.
In total, the price increase has taken more money out of producers pockets than it has put in. Prices need to move above the loan
rate to have a positive impact on producer income.
With November 1999 soybean futures
at $5.15 and July 2000 futures at $5.40, the market is offering
a 1999-00 marketing year average farm price of about $5.10 per
bushel, with normal post harvest basis levels. That is about $.10
above the USDAs estimate of the average price for the 1998-99
marketing year, ended on August 31. The current price appears
to be trading expectations of year ending stocks of about 370
million bushels. If September 1, 1999 stocks are near the USDA
projection of 385 million bushels, and if the 1999-00 market size
is near the USDA projection of 2.72 billion bushels, the market
appears to be trading a crop of about 2.7 billion bushels, slightly
below the smallest private estimate.
This is not an exact analysis, since
the relationship between carryover stocks and average price is
not exact and the market may have different expectations about
market size. The market for U.S. soybeans during the current marketing
year will depend on a number of factors, including the size of
the 2000 South American crop. One of the negative influences of
the timing of the current price rally is that it will encourage
soybean planting in South America.
With December 1999 corn futures
at $2.25 and July 2000 futures at $2.45, the market is offering
a 1999-00 marketing year average cash price of about $2.15. That
is $.20 higher than the USDAs estimate of $1.95 for the
1998-99 marketing year, when year ending stocks were near 1.7
billion bushels. The market currently reflects expectations of
1999-00 marketing year ending stocks of about 1.5 billion bushels.
The USDA has projected the size
of the U.S. corn market at 9.41 billion bushels during the 1999-00
marketing year. Many analysts believe that estimate will have
to be reduced due to more active Chinese exports. If the market
is for 9.36 billion bushels, the current corn price reflects a
1999 U.S. crop of about 9.16 billion bushels. As in the case of
soybeans, that is below the lowest private estimate for the size
of the 1999 crop.
While this analysis has some short
comings, the market is clearly trading much smaller crops than
reflected in the USDAs August Crop Production report.
In addition, there is likely an expectation that the USDA production
estimates for both corn and soybeans will be reduced again in
October. Since 1975, the September corn production estimate was
below the August estimate 12 times (50 percent of the years).
In those 12 years, the October estimate was below the September
estimate 7 times. Over that same time period, the September soybean
production estimate was below the August estimate 9 times (37.5
percent of the years). In those 9 years, the October estimate
was below the September estimate only 4 times. Since 1987, the
4 years with a smaller September production estimate have each
been followed by a higher October estimate. One other point worth
noting, in recent history, the USDAs September production
estimates, on average, have been closer to the final crop size
than have the private September estimates.
Issued by Darrel
University of Illinois