Will There Be Other Opportunities for High Prices?

$10 soybeans, $3 corn and $4 wheat are gone! At least for now. New crop (2004 production) prices have also declined significantly. November soybean futures are more than $1 per bushel less than they were in early April. December corn prices have slipped fifty cents, or more, and July wheat prices have been as much as seventy cents lower. For those who have made pre-harvest sales on these earlier prices, the recent price declines suggest these may have been very good sales. Will there be other opportunities to capture favorable new crop prices or, for those who have not made any sales, a chance to get higher prices?

The May 12 USDA reports offered their initial supply and demand projections for 2004 crop production. These monthly reports will now provide supply/demand information, which is useful to adjust and re-evaluate marketing strategies throughout the growing season. The projected price ranges will also assist in evaluating current prices and setting pricing goals or targets.

Soybeans: Why the sharp decline in prices? The need to ration last fall's disappointing U.S. soybean crop began the price uptrend. Strong demand and deteriorating conditions in the South American crop sent prices above $10. While tight supply conditions still exist, these conditions are "in the market." Concerns about Chinese imports, strengthening U.S. dollar, imports of meal and oil into the U.S., along with slowing of domestic crush are among the "negative news" behind the recent price declines. However, following disappointing crops in both hemispheres, everyone will be watching the progress of the 2004 crop and any potential changes to supply or demand.

USDA expects soybean production to rebound in 2004. March planting intentions suggest that soybean acreage will increase by 2 million acres to 75.4 million acres. Using a projected average yield of 40 bpa, a record crop of more than 2.9 billion bushels is expected. While demand remains strong, soybean ending stocks are projected to increase from 115 million bushels to 190 million bushels. This is not a burdensome level of stocks, but it is an increase and the prospect of increasing ending stocks is nearly always negative to prices.

What could change? These projections depend upon increased acreage and good production conditions. Final planted acreage and growing conditions will receive considerable attention in the weeks ahead. Old crop supplies remain very tight and strong demand is anticipated. A large crop is needed and any crop problems could produce sharply higher prices.

Pricing decisions will not be easy, especially when production risk is also a factor in decision making. USDA projects prices to average $5.85 to $6.85, well below earlier new crop prices that approached $8. This suggests that, although prices have declined significantly, current new crop prices may not be that bad. November soybean futures are offering prices near the upper end of USDA's projected price range-a situation that may suggest selling price rallies.

Corn: USDA anticipates record corn production resulting from a projected record average yield of 145 bpa on 71.9 million harvested acres. However, record corn use is expected and ending stocks are projected to decline from 806 million bushels to 741 million bushels. World corn supplies are also expected to decline. These tight supplies will keep the market focused on 2004 production prospects. Early planting may result in increased acreage and increase the potential for record yields-a situation that could produce increasing ending stocks and lower prices. In contrast, poor growing conditions with less than expected yields would further tighten supplies and send prices much higher.

Tight supplies and the necessity of a large crop will result in production and market price risks throughout the growing season. For now, declining stock estimates suggest the potential for higher prices and USDA projects a 2004-05 price range of $2.55 to $2.95 compared to $2.45 to $2.55 for the 2003 crop. This suggests that, without serious production problems, prices near the upper end of the projected price range may offer sales opportunities. However, since current new crop (December futures) prices result in cash price in the mid to lower portion of USDA's projected price range, it appears the market may not be recognizing all of the price risks and volatile prices may provide higher price opportunities.

Wheat: USDA expects wheat production to decline in 2004. Lower yields and fewer acres result in expected production of 2.080 billion bushels. Use is also expected to decline, but ending stocks are projected to decline from 526 million bushels for the 2003 crop to 499 million bushels for the 2004 crop. Although foreign production is expected to increase, world wheat supplies remain tight and world ending stocks are expected to decline.

USDA expects 2004 crop wheat prices to range from $3.25 to $3.85 compared to an average of $3.40 for the 2003 crop. Current new crop prices (July CBOT futures) are within this range, but tight supplies will keep the market sensitive to production or demand surprises and that could result in higher prices. However, current prices suggest considering additional sales on any price rallies to the upper end of USDA's projected price range.