Extension Communications Extension 4-H Youth Building Ames, Iowa 50011-3630 (515) 294-9915

10/15/04

FOR IMMEDIATE RELEASE

Contacts:
Robert Wisner, Ag Economics, (515) 294-6310, rwwisner@iastate.edu
Del Marks, Continuing Education and Communication Services, (515) 294-9807, delmarks@iastate.edu

Implications of Record-Large Month-to-Month Increases in Crop Estimates

AMES, Iowa -- Unusually favorable September weather led to the largest September to October percentage increases in corn and soybean production estimates ever recorded in the 1965-2004 period, notes an Iowa State University Extension Economist. ISU Extension economist Robert Wisner said the U.S. average corn yield rose by a shocking 9 bushels per acre or 6 percent from the September forecast, and the soybean yield was up 3.5 bushels per acre or 9 percent.

Wisner said that with the higher yields, U.S. Aug. 31, 2005, corn carryover stocks are likely to rise by 75 to 100 percent from a year earlier, along with a 350 to 365 percent increase in soybean carryover stocks. He indicated this news is likely to keep prices for both crops below loan rates for the next several weeks. Corn cash prices and the basis may weaken further as harvesting accelerates.

Wisner added that the huge yields are likely to cause serious shortages of storage space across the Midwest as the last 15 percent of the corn crop is harvested. By Oct. 10, 16 percent of the Iowa corn crop and 34 percent of the U.S. crop were estimated to be harvested. U.S. soybeans were reported at 58 percent harvested, along with 81 percent of the Iowa crop.

Wisner's analysis indicates current crop estimates, if they materialize, will push combined U.S. corn and soybean supplies about 8 percent or 1.12 billion bushels larger than in the fall of 2000, when a large amount of corn was piled outside. Changes in crop estimates from October to season final estimates in other similar years hint that further increases in crop estimates may be ahead.

Price and LDP Impacts
Cash corn prices may remain depressed into December or early January as the grain trade uses up outside piles. Wisner believes modest corn price strength is likely from mid-January into the second or third week of February. Prices may level off or weaken slightly in late February and early March. From late March into mid-May, the ISU Extension economist anticipates modest price strength in old and new-crop prices as the grain trade worries about adequate corn acreage and yields to meet next year's increased demand. But price strength will be tempered by prospects for much larger carryover stocks than in the last two years, he added.

Modest strength in the soybean basis and cash prices appears likely in November and early December as processors and exporters rebuild inventories and line up supplies for the winter and spring, Wisner said. Soybean prices from mid-December onward will take direction from South American crop prospects and U.S. weekly export sales. With a return to normal yields in Brazil and Argentina, Wisner believes soybean prices could weaken modestly in the spring when their new-crop supplies enter world markets.

The economist added that barring a change in USDA posted county price differentials, market conditions suggest a slight additional increase in corn Loan Deficiency Payments (LDPs) may occur as harvesting accelerates. With soybean harvesting well advanced in the Midwest, market conditions suggest soybean LDPs may decrease slightly in the next several weeks. Wisner said the risks of taking the corn LDP and holding corn unpriced into spring appear to be relatively low this year, but not zero. Risks for soybeans appear to be more significant.

For those concerned about risk-exposure after the LDP is taken, Wisner added that at many elevators, forward contracting prices for spring delivery in mid-October were 28 to 32 cents above current cash prices. A few processors are offering even larger returns for storage. Producers who sell on non-roll hedge-to-arrive or futures-only contracts may be able to get a better basis than reflected in current forward contracts. Wisner's estimates place out of pocket cost of storing corn on the farm eight months beyond harvest at around 17 cents per bushel. With these costs, he said forward contract prices and hedging prices for spring delivery of corn offer an above normal return for storing corn. Wisner's analysis in mid-October indicated forward contract prices for soybeans generally offer about a break-even situation for on-farm storage into May. However, shorter-term bean storage may offer small profits.

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