KANSAS CITY (B)--As the corn crop passes the halfway point in its development, futures prices already have dropped past the trading-year low that analysts were predicting for harvest time. Production estimates keep going up, highlighted by the U.S. Department of Agriculture's forecast for a 10.3-billion-bushel crop.
"Usually, the corn market reaches its seasonal lows in July only when yield prospects are eroding and the supply outlook just keeps getting smaller," said Kansas State University economist Bill Tierney.
This year, however, that isn't true. So, July's prices could be an omen of lower lows ahead.
"Most feed grain growers are protected against further price risk," the economist said. "They signed up for the government's loan program, and the loan rate is higher than current futures trade.
"But how feed grain buyers will be affected is anyone's guess. Industry watchers are predicting the number of livestock on feed nationwide is about to decline for the first time in more than 13 years. Beyond that, new-crop exports are running at the low end of historical sales trends."
Tierney, grain market analyst for K-State Research and Extension, said an array of "beliefs" could be causing prices to drop earlier and further than expected. For example, the market may..
1. Think yields will be higher than USDA is projecting, and/or
2. Expect demand will be lower than current forecasts, and/or
3. Totally discount the possibility of significant crop problems before harvest.
"Those aren't off-the-wall opinions," the economist said. "As August began, the crop was 11% ahead of the long-term average for silking. Crop conditions were 19 points higher than usual. Weekly crop progress and condition reports were pointing to national average yields in the area of 143 bushels an acre. So, based on USDA's forecast for harvested acres, we seemed more than capable of ending up with 10.44 billion new bushels of corn."
In turn, December corn futures prices could drop to $1.70 a bushel, he said.
New-crop corn exports in July were about 9 million bushels behind last year's pace. They accounted for 5% of USDA's projection for the 2000-01 marketing year, even though July sales typically add up to 12% of the annual total.
"Exports are hard to call, though. For example, July's sales have been behind average for the past three years. Yet, that hasn't necessarily meant USDA's annual forecast was too high," Tierney said. "In addition, old-crop sales that are undelivered when the marketing year ends are counted as new-crop shipments. Japan often affects export totals in this way.
"On the other hand, forecasts are calling for another year of significant corn exports from China. So, USDA's corn export projection may be too optimistic."
The U.S. poultry sector is looking toward an increase in feed grain use, he said. But, declines in the amounts fed to dairy cows, beef cattle and hogs should keep the coming year's domestic livestock use to less than 0.5% annual growth.
"The early projections were putting new-crop feed prices near 12-year lows, adding up to a 6% annual savings in feeding costs," Tierney said. "Current trade could mean those savings will be even more attractive.
"This will be an interesting marketing year to watch unfold. Fortunately, it shouldn't get as tense as those bumper crop years before the marketing loan program started protecting against lower revenue by making up the difference between actual cash prices at harvest and the marketing loan rate."
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