Weekly Outlook: Corn Prices
November 25, 2003
  • /Agricultural and Consumer Economics
 
November 25, 2003

URBANA--It appears that the corn market is in position to generate a wider price range than has been experienced over the past 14 months, said a University of Illinois marketing specialist.

"Since the beginning of the 2003-04 marketing year on Sept. 1, the average daily cash price of corn in central Illinois has traded between $2 and $2.39-1/2," said Darrel Good. "The marketing year range in that price has been less than 50 cents only twice in the previous 30 years--1990-91 and 1992-93. Over the past five years, the marketing year range has varied from 60 cents to 80 cents per bushel.

"If $2 is the marketing year low, the highest price of the year would be expected to be at least $2.60. Typically we could expect the highest price of a marketing year with such a large crop to occur in the spring/summer following harvest. The timing of a new high this year, if it does occur, is less certain."

Export demand, acreage intentions, and weather will all influence price patterns, Good added.

"A new marketing year low price, if it were to occur, would not be expected until late summer of 2004 under the influence of another large crop," he said. "The trading range of December 2004 futures will also likely exceed the current range of $2.32-1/2 to $2.60."

Good's comments came as he reviewed corn prices, which have been in an extremely narrow range for the past 14 months. Since Sept. 24, 2002, the average daily cash price of corn in central Illinois has traded between $2 and $2.50-1/2. The average monthly price of corn received by U.S. producers from October 2002 through September 2003 ranged from $2.15 to $2.35 per bushel.

"The average for October 2003 will be revealed on Nov. 28 and will likely be near $2.10," said Good. "December 2003 corn futures have traded between $2.09-1/2 and $2.60. The trading range of 59-1/2 cents is the third smallest of the past 31 years. The range was only 54-1/4 cents for the December 1987 contract and 55 cents for the December 1991 contract. The December 2004 contract has had a trading range of only 27-1/2 cents."

Good noted that relatively stable corn prices since the fall of 2002 have come during a period when soybean and wheat prices have been much more volatile. Since Sept. 24, 2002, for example, the average cash price of soybeans in central Illinois has had a trading range of $2.52 and the daily cash price of soft red winter wheat at St. Louis has had a range of $1.45 per bushel.

"So far in the 2003-04 marketing year, corn prices have been somewhat higher than expected with a record U.S. harvest near 10.3 billion bushels," Good said. "Support has come in part from large exports and export sales and anticipation that exports will remain large.

"The USDA has increased the 2003-04 marketing year U.S. export projection from 1.8 to 1.875 billion bushels, 282 million bushels--17.8 percent--above last year's shipments. Through the first 11.5 weeks of the year, the USDA reports that 400 million bushels of U.S. corn had been inspected for export shipment. That total is 23.5 percent above the total on the same date last year."

The increase in shipments, he added, has been led by Taiwan, Egypt, and Mexico. As of Nov. 13, the USDA reported outstanding export sales of U.S. corn of 403 million bushels, compared to sales of 320 million bushels on the same date last year.

"Outstanding sales are up sharply for all major buyers of U.S. corn--Japan, Taiwan, Egypt, and Mexico," he said. "In addition, outstanding sales to unknown destinations stood at 80 million bushels, more than double the sales to unknown destinations reported last year. The USDA continues to receive reports of sales to unknown destinations under the daily reporting system, with another 9.4 million bushels reported on Nov. 24."

It is the large sale to unknown destinations that is of major interest to the market. These large sales fuel speculation that China may be reducing export commitments due to smaller supplies and higher internal prices, even though shipments through October remained very large.

"If that is occurring, or does occur in the near future, the United States would expect to make much larger sales to South Korea," said God. "A return of South Korea to the U.S. corn market, along with larger sales of U.S. corn to other Chinese customers, could propel 2003-04 U.S. corn exports above current projections and sustain U.S. exports at a high level beyond this year."

U.S. corn supplies are large enough to accommodate use this year at a higher level than currently projected by the USDA, he noted. With use for all purposes projected at 10.025 billion bushels, year-ending stocks are expected to be at 1.35 billon bushels.

"That is, use could exceed current projections by 350 million bushels and still maintain ending stocks near one billion bushels," Good said. "The margin for increased use may be even a little larger if the January corn production estimate exceeds the November forecast.

"However, with world corn consumption continuing to expand and inventories of corn outside of the United States at much lower levels, the size of the 2004 U.S. crop becomes increasingly important."

-30-