July 15, 2002
THE WEATHER MARKET OVER?
corn futures reached a contract low of $1.98 in early May. December
2002 futures reached a low of $2.15 at about the same time. A
combination of late planting, expectations that acreage would
fall short of March intentions, and a period of hot, dry weather
sent prices higher in May and June. July futures moved to a high
of $2.35 and December traded to $2.54 on July 2.
ratings have continued to decline, corn prices have dropped significantly
since July 2. July futures matured at $2.1425 and December futures
settled at $2.3235 on July 12. The average cash price of corn
in central Illinois declined from $2.25 to $2.07 during that same
period. A number of fundamental factors have contributed to the
price decline of the past 2 weeks. Foremost, was the USDA's June
28 Acreage report which indicated that corn plantings were very
near March intentions. The market had anticipated a report showing
a decline of about a million acres. Second, significant rainfall
in some areas and moderating temperatures in the eastern corn
belt reduced the anxiety about yield prospects. Third, weekly
export shipments continue to run well below the pace needed to
reach the USDA projection for the current year. With only 7 weeks
left in the 2001-02 marketing year, it appears that shipments
could fall a bit short of the USDA projection. Fourth, the USDA's
July update of U.S. and world supply and consumption prospects
reflected expectations of more abundant supplies. Finally, the
market generally expects U.S. corn acreage to increase again in
2003 so that a reduction in inventory over the next year is not
viewed with alarm.
World Agricultural Outlook Board maintained the June projection
of the U.S. average corn yield in 2002 at 135.8 bushels per acre.
When coupled with the larger acreage estimate, the projected harvest
grew from 9.65 billion bushels in June to 9.79 billion in July.
In addition, the Outlook Board reduced its forecast of 2002-03
marketing year exports by 50 million bushels. Stocks of U.S. corn
are still expected to decline by the end of the next marketing
year, but not as dramatically as projected last month.
to a larger U.S. crop, the USDA's July report contained a larger
forecast for the Chinese corn crop. That crop is projected at
4.92 billion bushels, 4 percent larger than projected last month,
10 percent larger than the 2001 crop, and 18 percent larger than
the 2000 crop. The USDA still expects world corn consumption to
exceed production in the year ahead (for the third consecutive
year), but the expected draw down in stocks is not as large as
projected last month.
USDA's July projections of U.S. and world production painted a
picture of more abundant corn supplies, a great deal of uncertainty
about production still persists. The extremely variable weather
conditions in the midwest make it difficult to assess crop conditions.
In addition, the wide range of maturity of the crop, especially
in the eastern corn belt, means that production uncertainty may
persist for several more weeks. The market will continue to respond
to the USDA's weekly report of crop conditions and maturity, weather
conditions, and weather forecasts.
National Agricultural Statistic Service (NASS) will release the
first projection of the size of the 2002 U.S. corn crop on August
12. That report will reflect objective yield estimates in key
production states and any acreage changes uncovered in the August
survey. Historically, there has often been a significant difference
between the August production forecast and the final production
estimate. The magnitude of that difference is obviously influenced
by weather conditions following the August survey. The lateness
of this year's crop in some areas, and the fragile condition of
the crop in many areas, suggests that yields will be especially
dependent on August and September weather.
With so much
production uncertainty, it is likely that corn prices will continue
to be quite volatile over the next several weeks. The crops in
the drier areas of the corn belt have already suffered yield-reducing
stress. Perhaps the market has been too complacent about the adverse
crop conditions and therefore too optimistic about yield potential
for the 2002 crop. This week's USDA report of crop conditions
will be an important benchmark in answering that question. The
market seems to be expecting stable conditions from the previous
week. Any significant deviation from these expectations would
likely have important price implications.
prospects continue to decline, as suggested by current crop ratings,
producers will experience better pricing opportunities over the
next several weeks.
University of Illinois