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By Jose G. Peña Futures price bids for corn rallied after USDA's August 12 supply/demand report forecast a potential record corn crop of 10.064 billion bushels. USDA's August forecast of 10.064 billion bushels is down two percent from last month's forecast of 10.27 billion bushels, but the production forecast is up 11.7 percent from last year and 5.9 percent above the 9.5 billion bushels produced in 2001. So, the market strength appears associated with the lower forecast, but abundant supplies may keep a lid on a major market rally. USDA's August supply/demand report was eagerly anticipated by market watchers who anticipated that deteriorating crop conditions might reduce last month's record forecast. USDA reduced expected average yields to 139.9 bushels per acre based on conditions as of August 1, down 2.8 bushels from last month's estimate of 142.7 but up 9.9 bushels from last year. If realized, both production and yield will be the largest on record. The previous record for both was set in 1994 when production was estimated at 10.051 billion bushels, just slightly below this forecast of 10.064 billion bushels. The 1994 yield estimate was 138.6 bushels per acre, 1.3 bushel fewer than the current estimate. After dropping to life-of-contract lows last month, futures price bids for corn moved up sharply on Tuesday, when this report was prepared, to settle in the $2.20/bu (Sept. '03)-$2.30/bu (Dec. '03) range. While this market rally is far short of the highs of around $3/bu reached in Sept. '02, price bids appear to be showing significant improvement over last month's lows in the $2.04-$2.09 range for 2003 contracts, in spite of the record forecast. USDA's corn production forecast will exceed the estimate of consumption of 9.9 billion bushels by 164 million bushels. Ending stocks will increase by a manageable 175 million bushels to 1.184 billion bushels, compared to last month's ending stock estimate of 1.339 billion bushels. Price bids for cotton commodity contracts weakened to close about a penny lower on Tuesday, Aug. 12 for most contracts. After dropping to the high 20s during fall '01, price bids for cotton futures contracts improved gradually to the 59-63 cent range for 2003 contracts during late April, weakened in early May and then rebounded past the 60 cent mark to set new life-of-contract highs in the 62-63 cent range for 2003 contracts. Since then, price bids have weaken to the high 50s as reports of a potentially larger crop began to materialize. While corn plantings in Texas were initially behind schedule, it appears that the crop has gained momentum. About 64 percent of the crop is rated as mature compared to a five-year average of 55 percent for this same time. However, only 28 percent of the crop has been harvested compared to a five-year average of 40 percent for this same time, primarily because of rains during harvest. About 47 percent of sorghum in Texas is mature compared to 45 percent a year ago at this same time, and 43 percent of the crop has been harvested compared to 37 percent a year ago at this same time. Corn and cotton crop progress in the U.S. is slightly behind schedule. For example, only 80 percent of the cotton crop is setting bolls compared to a five-year average of 91 percent. Only 35 percent of the corn crop is in the dough stage compared to a five-year average of 48 percent, and only nine percent has dented compared to a five-year average of 15 percent for this same time. Corn USDA's outlook for U.S. 2003/04 feed grain production in the August 12 supply/demand report indicates lower production, reduced use and lower stocks. The first survey-based forecast of 2003 corn production is down 206 million bushels from last month's projected crop, which was based on trend yield forecast as adjusted for crop conditions. In addition, the first survey-based yield forecast for sorghum is sharply below last month's estimate, which was based on trend yields. The forecast was reduced due to very hot and dry conditions in many of the major sorghum producing regions. While the larger corn crop is partially offset by smaller forecast carry-in stocks, total corn supplies for the 2003/04 season are up 4.4 percent from this past season. Even though carry-in stocks are lower, production is expected to exceed consumption, and ending stocks are forecast to increase 17.3 percent to 1.184 billion bushels. Global 2003/04 coarse grain supply and use projections are down from last month, largely due to smaller U.S., EU, and Eastern Europe crops. The smaller EU coarse grain crops result in reduced domestic use, stocks, and exports (rye and oats) but larger projected imports (sorghum and corn). So, while the record U.S. corn production forecast and abundant supplies appear to be keeping a lid on a major market rally, global shortages appear to indicate a potential for further market improvement. It appears doubtful that the futures price bids will rebound above $2.50/bu as they did during March, but some further improvement from current levels is possible. USDA's projected average price range for corn is up 10 cents on each end from last month to $2-2.40 for 2002/03. Cotton USDA's August 12, 2003 projections for 2003/04 include higher productions and lower mill use, resulting in higher ending stocks. USDA's August production forecast of 17.1 million bales is up three percent from last month's estimate of 16.6 million bales, but down .6 percent from 17.21 million bales produced last year and down 15.8 percent from 20.3 million bales produced in 2001. Exports remained unchanged at 11.8 million bales, but the estimate of domestic use at 6.6 million bales was down 2.9 percent from last month's estimate of 6.8 million bales and down 9.6 percent from 7.3 million bales used last year. In terms of the global cotton situation, USDA’s August projections include higher production and stocks compared to last month. While the estimate of world consumption remained unchanged from last month, world production includes increases in the U.S. and India, and beginning stocks were raised about 650,000 bales as increases in China, Australia, Mexico and India were partially offset by a reduction in the U.S. Ending stocks are forecast at 34.46 million bales, up 3.6 percent from last month's estimate of 30.27 million bales, but down 16.4 percent from last year and the lowest stocks since 1994/95. Dr. Carl Anderson, professor and Extension economist for cotton marketing, suggests that with the 2003/04 world cotton supply stabilizing, futures prices are not likely to rally much above 60 cents this fall when most cotton is marketed. As a result, the average world price for the 2003/04 season may hold in the low 50-cent range, and consequently the 2003/04 counter-cyclical payment may only be reduced by a few cents. A larger world crop than the August estimate of 95.38 million bales could leave the CCP close to the maximum of 13.73 cents. Anderson contends that as in most years, the next USDA crop estimate on September will be a strong benchmark for the 2003/04 season's market price. Foreign crop production 12 million or more bales less than use and the potential for a 11.8 to 12 million bale U.S. export market is a must to support futures prices in the high 50 to low 60 cent range. World cotton stocks are in reasonable balance. |
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