Corn, Soybean & Wheat Price Update for 1999

Farm Business Management Update, April 1999

By Dave Kenyon of the Department of Agricultural and Applied Economics, Virginia Tech

USDA released U.S. prospective planted acres for corn, soybeans, and wheat on March 31. The table below shows this year compared to last year in thousand acres.

Crop	1998	1999	Change
Corn	80,187	78,219	-1,968
Soybeans	72,375	73,105	730
Wheat	65,871	63,029	-2,842

The corn acres is substantially less than 1996, 1997 and 1998, but not nearly as small as the 71.2 million acres planted in 1995 that resulted in $5.00 corn prices in the spring of 1996. The soybean acres are the largest in recent history. Since 1996, soybean acreage planted has increased by 9 million acres. Wheat acres continue to decline to the lowest level in 26 years. What do these planted acreage estimates indicate in terms of average price levels in 1999 and pricing opportunities this summer?

USDA has not released supply and demand tables for marketing year 1999-2000 yet. The first estimates will be released on May 10. But these initial planted acres estimates allow the development of supply and demand tables based on historical relationships. These relationships are contained in the new Pricing Guides for corn, soybeans, and wheat released in January 1999. Using the ratios & equations in these publications, supply and demand estimates for 1999-2000 have been developed. For each crop, the average scenario is the most likely and represents trendline yields. The excellent column is based on above average yields, and the poor column is based on low yields. Consult the pricing guides for more details on how these estimates were calculated. In some cases, I have applied some "fudge factors" based on previous experience.

Corn. The corn situation for 1999-2000 looks very similar to 1998-1999 based on average yields. Ending stocks are forecast at 1,756 billion bushels - almost identical to 98-99. The US season average price is estimated at $2.15 bushel. During the 1998 growing season, December 1998 corn futures traded above $2.70 until May 1998. After that, prices trended lower and traded around $2.00 at harvest. In 1998, estimated ending stocks for August 1999 were 1.3 billion bushels. In 1999, ending stocks in August 2000 are forecast to be 1.756 billion bushels. Hence, the pricing opportunities in 1999 are not likely to be as good as 1998. Since October 1998, December 1999 corn futures have traded as high as $2.64 and as low as $2.34 in February. Given expected supplies and ending stocks, producers should consider pricing up to 25% of expected production when December futures reach $2.50-2.55, and another 25% at $2.60-2.65. If 78+ million acres are planted, and yields are 130+ bushels, harvest prices of corn should be in the $2.00-2.25 area this fall.

Soybeans. If farmers plant 73.1 million acres, this will be the largest planted acres of soybeans on record. With a 53-mmt crop being harvested in South America, world supplies are at record levels. With average yields, ending stocks are estimated at 616 million bushels, the largest ever. The direction in price will be down over the growing season unless weather problems produce lower yields. Even at 35 bushels acre, ending stocks for marketing year 99-00 do not decline from the current year. Cash soybean prices are expected to be below $4.50 at harvest. November 99 soybean futures are likely to trade down to $4.75, and may trade lower. November 99 soybeans closed at $5.07 on March 31. At this level, they are substantially below the U.S. loan rate of $5.26. It will take substantial weather problems to bring futures back above the loan rate. Should November 99 futures trade back to the $5.30 level, producers should consider selling 25% of expected production. Up to 2/3's of expected production should be forward priced if November 99 futures reach the $5.60-5.70 range.

Wheat. Wheat acres are down 3 million acres compared to 1998. With average yields, ending stocks should decline from 955 million bushels on May 30, 1999 to less than 800 million bushels on May 30, 2000. Hence, the overall direction in price over the longer run (after 99 harvest) should be up. July 99 wheat futures bottomed out at $2.57 in late February, and had moved up to $3.04 before the March 31 report. Estimated acres where higher than some analyst anticipated, so prices have traded lower after the report. But given any weather problems, July 99 wheat has a good possibility of trading back up to the $3.10-3.15 range. I would price 25% of 1999 expected production at that level. At $3.25-3.30, I would price another 25%. I would not price at current levels because it does not result in net cash prices above the loan rate. Since the general direction is up, wait on this market to return to better price levels.

These pricing suggestions are based on the planted acres reported in March 1999. Producers still have some flexibility to change these acres. And of course growing season weather will determine yields. Producers need to continue to monitor planting progress and weather conditions. But overall, the basic supply and demand situation for each crop results in large ending stocks, resulting in below average prices. Producers need to watch for the USDA official supply and demand table on May 12. If there are any major changes, the above pricing recommendations will need to be updated.

Soybean Supply and Demand Pricing Update

		99-002
ITEM	98-991	EXCEL	AVE	POOR
PLANT	72.4	72.6	73.1	73.6
HARVEST	70.8	71.5	72.0	72.5
YIELD	38.9	42.0	38.0	35.0
BEG STOCKS	200	470	470	470
PRODUCTION	2,757	3,003	2,736	2,538
TOTAL SUPPLY	2,963	3,473	3,206	3,008
CRUSH	1,560	1,600	1,540	1,525
EXPORTS	780	950	900	850
SEED, RESID.	153	150	150	150
TOTAL DEMAND	2,493	2,700	2,590	2,525
END STOCK	470	773	616	483
AVE PRICE	$ 5.10	$ 4.00	$ 4.20	$ 4.70

¹   WASDE 3/11/99
²   Estimates

Wheat Supply and Demand Pricing Update

		99-002
ITEM	98-991	EXCEL	AVE	POOR
PLANT	65.9	63.0	63.0	63.0
HARVEST	59.0	56.5	55.5	52.8
YIELD	43.2	42.0	39.0	35.0
BEG STOCKS	722	955	955	955
PRODUCTION	2,550	2,373	2,165	1,848
IMPORTS	95	95	95	95
TOTAL SUPPLY	3,368	3,423	3,215	2,898
FOOD	925	940	940	935
SEED	88	90	95	100
FEED	350	325	300	250
EXPORT	1,050	1,150	1,100	1,050
TOTAL DEMAND	2,413	2,505	2,435	2,335
END STOCK	955	918	780	563
AVE PRICE	$ 2.70	$ 2.75	$ 2.85	$ 3.40

¹   WASDE 3/11/99
²   Estimates

Corn Supply and Demand Pricing Update

		99-002
ITEM	98-991	EXCEL	AVE	POOR
PLANT	80.2	78.2	78.2	78.2
HARVEST	72.6	71.6	71.6	69.6
YIELD	134.4	136.0	130.0	117.0
BEG STOCKS	1,308	1,711	1,711	1,711
PRODUCTION	9,761	9,738	9,308	8,143
IMPORTS	12	12	12	12
TOTAL SUPPLY	11,081	11,461	11,031	9,866
FEED	5,700	5,600	5,575	5,500
FOOD, IND	1,870	1,900	1,900	1,900
EXPORT	1,800	1,850	1,800	1,750
TOTAL USE	9,370	9,350	9,275	9,150
END STOCK	1,711	2,111	1,756	716
AVE PRICE	$ 2.05	$ 2.00	$ 2.15	$ 2.80

¹   WASDE 3/11/99
²   Estimates

Contact the author at dkenyon@vt.edu .

Visit Virginia Cooperative Extension