Every rural route traveler knows this year's U.S. corn crop is barely past half-grown. It's almost finished "silking." Some is into the "dough" stage of development.
Yet, every market watcher knows the futures prices for that crop have already dropped past the trading-year low that analysts were predicting for harvesttime.
"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.
Thus far, however, that isn't true this year. So, July's prices could be an omen of lower lows ahead.
"Most feedgrain 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
"But how feedgrain 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--the 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 the U.S. Department of Agriculture 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.
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 percent of the annual total.
"Exports are hard to call, though. For example, July's sales have been behind average for the last 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 feedgrain 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 one-half percent 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.