September 24, 2008

   

Multiple factors spell instability for US corn and soy prices
     

 

Corn and soy prices continue to be influenced by a wide array of factors, resulting in a very unstable price pattern, according to the USDA.

 

Factors include changes in the value of the US dollar, changes in crude oil prices, export news, weather and production expectations, and developments in the financial markets.

 

Lower crude oil prices are generally viewed as having a negative impact on prices due to the relationship to the price of bio-fuels and the profitability of bio-fuels production. Higher crude oil prices, then, are viewed as positive for corn and soy prices. 

 

US corn exports below year-ago levels
 

Over the past week, December corn futures traded in a range of US$0.55. In the past seven trading sessions, November soy futures traded in a range of about US$1.20.

 

The pace of US corn export sales and shipments continue to lag the pace of a year ago. During the first 2.5 weeks of the 2008-09 marketing year, the USDA report export inspections of only 65 million bushels, nearly half the 120 million bushels during the same period last year.

 

Through September 11, the USDA's report of export sales showed total export commitments for the current year at 488.5 million bushels compared to 735.3 million on the same date last year.

 

The 33.6 percent decline is almost double the USDA's projection of a 17.5 percent drop in exports for the year. Sales to the major customers of US corn like Japan, South Korea, Taiwan, and Mexico are lagging the pace of a year ago.

 

US soy exports to drop 13.4 percent for this year
 

The early pace of US soy exports is also lagging the pace of a year ago, but unshipped sales are larger than sales of a year earlier.

 

In the first 2.5 weeks of the year, export inspections totaled 15 million bushels, compared to 20 million in the same period last year. However, as of September 11, the USDA reported total export commitments of about 344 million bushels, compared to 317 million on the same date last year.

 

The USDA projects a 13.4 percent drop in exports this year, but early commitments exceed those of a year ago by almost 9 percent. Japan and South Korea account for much of the year-over-year increase.

 

Wheat production to boost stocks for the first time in four years
 

World wheat, coarse grain, and soy production are expected to be record large in 2008-09. Wheat production is expected to be large enough to result in an increase in year ending stocks for the first time in four years. Wheat production concerns center around Argentina and Australia where dry weather continues to threaten crop development.

 

Earlier this month, the USDA lowered the production forecast for Australia by 12 percent and the forecast for Argentina by 7 percent. World coarse grain stocks are expected to increase modestly. The increase in soy stocks is dependent on the size of the 2009 South American harvest.

 

Currently, it appears that the late maturing crops will not be impacted by a wide spread early freeze. However, the drop in yield and production for both crops earlier this month may point to a further decline in October. Since 1970, there has been a modest correlation between the change in the production forecast in September and the change in October. The correlation is stronger for corn than for soy.

 

The October report, however, will contain more complete information about acreage of both crops.

 

Prices in broad trading range
 

If problems in the financial markets lead to weakening US and world economies, the demand for both food and energy could also weaken with direct implications for corn and soy prices.

 

For now, both corn and soy prices appear to be in a broad trading range. For December 2008 corn, that range extends from about US$5.00 to about US$6.25. The current price is very near the middle of that range. For November 2008 soy futures, the range extends from about US$11.00 to about US$13.00.

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