Lower Prices Ahead?

USDA's July 11, 2003 Crop Production Report projected large crop production this year. The projections include a record corn yield of 143.7 bpa and record production of 10.270 billion bushels. Corn use will increase, but not as much as production, causing ending stocks to go from 1.009 billion bushels ('02-'03) to 1.339 bushels ('03-'04). Soybean production is also expected to increase. It is somewhat surprising that USDA increased estimated corn yield by 3 bpa but did not change soybean yield estimates-isn't favorable weather for corn also favorable for soybeans? This may cause many analysts to look for higher soybean yield estimates as the season progresses, especially if favorable growing conditions continue. Soybean projected ending stocks for '03-'04 are estimated to be 260 million bushels compared to this year's 155 million bushels. Wheat production estimates (2.311 billion bushels) were higher than most expected and ending stocks are expected to rise from 468 million bushels ('02 crop) to 604 million bushels ('03 crop).

Large or record crop production with increasing ending stocks usually means lower prices. USDA's mid-point average new crop price projections are $2.10-corn, $4.85-soybeans and $3.10 wheat-all lower than average prices for last year's production.

Seasonal trends suggest prices often decline into fall. Twenty-five year December corn and November Soybean average futures price charts suggest that, following planting time highs, prices typically decline from July into harvest time price lows. New crop December '03 corn peaked in May and November '03 soybean futures prices peaked in June. If weather remains favorable, it appears possible that both could follow the 25-year average pattern by declining from July into harvest time lows. For those who took advantage of pre-harvest marketing opportunities discussed in May (Decisive Marketing, May 2003), the pre-harvest sales decisions are beginning to look better. But what about new crop production that has not been priced? Will there be other opportunities?

Some argue that, as a result of global markets, market price patterns may be changing. The price patterns in recent years have been somewhat different than the 25-year charts. Average new crop corn and soybean futures prices using the past five or ten year charts have declined from planting time into July or August, similar to the twenty-five year pattern. However, following the summer decline, prices have tended to rally into early fall, providing a "last chance" to make pre-harvest sales prior to harvest time price lows. Will this pattern be repeated again this year?

Current supply and demand estimates suggest lower prices, but the crop is not yet made--especially for soybeans. World corn and wheat supplies, while increased from last month's estimates, are expected to decrease in the year ahead. World soybean supplies are expected to increase, but demand continues to increase. Weather during the next few weeks will be critical. Additionally, crop development has been slow and early frost worries might surface as weather cools. If weather remains good, expect prices to decline. However, should production problems develop; prices could rally sharply as demand remains strong. While this "last chance rally" may or may not occur, the possibility provides a "time target" to price grain that must be moved at harvest time.

Making corn sales on any rally occurring prior to early September and soybean sales by mid-September is a strategy using time as a target instead of using a price target. This time strategy also could be combined with price targets using technical analysis. In this case, sales would be made when the technical price targets were hit or the time period ended. While these strategies may not hit prices in the upper end of the yearly average, they are likely to be a better price than what will be available at harvest time.

Other updated information will become available in the upcoming weeks that can be used anticipate fall price direction and to fine tune marketing plans. The August 12 USDA Crop Production Reports are the first "surveyed estimates" of 2003 corn and soybean production, and will be followed closely by the market. Multi-state crop tours sponsored by various groups also will begin to provide "first looks" at potential new crop production. May corn prices and June soybean prices now represent missed opportunities. Current supply and demand information suggests that further declines and lower prices are ahead. This suggests that marketing plans may need to include LDP and CCP along with pricing strategies. However, other factors suggest many reasons why a fall price rally also may provide pricing opportunities. Whether or not planting time sales were made, now is the time put those behind and begin revising strategies in anticipation of increased new crop production. A late summer rally may offer the best hope for "last chance" pre-harvest sales.