DR. DARREL GOOD Extension Economist University of Illinois
ated by smaller than expected June in- ventories and smaller than expected corn acreage revealed in USDA's June 30 reports. The rally was supported by strength in wheat prices that reflected declining wheat crop prospects in a number of important production areas. Strength in corn and soybean prices
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late last week reflected concerns about the potential impact of the forecast for widespread and lingering high temper- atures across the U.S. Updated fore- casts for more widespread and abundant precipitation this week mod-
outlook grain
orn and soybean prices managed an impressive rally during the first half of July. That rally was initi-
Focus On Weather And Crop Size
erated some of last weeks’ yield concerns. Most of the crop concern is centered on corn due to prospects for rela- tive small stocks at the end of the current marketing year and prospects for a continua- tion of a high rate of consump- tion during the 2010-11 marketing year. Consumption next year is expected to be supported by increasing use of
corn for ethanol production, although there is some concern about reaching the blend wall in early 2011. Most re- main optimistic that the Environmen- tal Protection Agency will approve a higher ethanol blend, at least for some vehicles, that would expand the poten- tial market for mid-level blends. There is also concern that the $.45 per gallon blender’s tax credit for ethanol which expires at the end of this year will not be renewed, or more likely, will be re- newed at a lower rate. Current price re- lationships in the ethanol and gasoline markets suggest that a lower tax credit rate would not reduce the incentive for blending. The concern would be that
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the price relationships change so that a lower tax credit rate would reduce those incentives. A case might be made for a variable tax credit rate that re- flects changing price relationships and blending economics. The other sectors of the corn market
are expected to experience stable con- sumption patterns. The USDA cur- rently forecasts non-ethanol processing uses of corn during the year ahead at 1.36 billion bushels, only 20 million bushels above the forecast for this year. Feed and residual use is projected at 5.35 billion bushels, 175 million less than the inflated projection for the cur- rent year resulting from the small esti- mate of June 1 inventories. U.S. corn exports during the year ahead are fore- cast at 1.95 billion bushels, equal to the forecast for the current year. There is a fair amount of uncertainty
about export demand for U.S. corn. Through July 15, the USDA reports cu- mulative export inspection during the current marketing year at 1.608 billion bushels. Through May, cumulative Census Bureau export estimates ex- ceeded inspections by 77.7 million bushels. If that margin has been main- tained, exports during the last 6.7 weeks of the year need to total 264 mil- lion bushels, an average of 39.4 million bushels per week, to reach the USDA projection of 1.95 billion bushels. In- spections over the 11 weeks ended July 15 averaged 40.8 million per week. It appears that shipments are on pace to reach the projection. Unshipped sales of U.S. corn for delivery during the cur- rent marketing year stood at 373.8 mil- lion bushels on July 8, well above that needed to reach the USDA projection.
Export sales for delivery during the 2010-11 marketing year stood at a rel- atively small 101 million bushels as of July 8, including only 2.4 million bushels to China. Export sales for next year, however, could accelerate if world wheat production prospects continue to decline. There is a little less concern about the
U.S. soybean crop even with small in- ventories due to prospects for reduced consumption of U.S. soybeans during the year ahead and the 1.4 million acre increase in U.S. planted acreage this year. With a trend yield in 2010, the USDA expects 2010-11 marketing year ending stocks of U.S. soybeans to reach a four-year high of 360 million bushels. An average yield slightly below trend would still leave expected stocks at a relatively high level. In general, expectations for the U.S.
average corn yield this year have de- clined slightly, but are still relatively high. The wide range of yield expecta- tions reflects the differing assessments of the impact of weather conditions to date and uncertainty about upcoming weather. Record or near record June rainfall in much of the Midwest may have had a negative impact on yield po- tential, but that is not accepted by all analysts. Even more subtle is the likely net impact of July temperatures slightly above average this year com- pared to the record or near record low temperatures of 2009. The USDA will release the first forecast of yields based on surveys and field observations on August 12. The price impact of that forecast could be significant.
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DR. DARREL GOOD: Extension Econo- mist, University of Illinois
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