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with Scott Irwin, Agricultural Economist - University of Illinois
There is a long-standing market saying that "big crops get bigger and small crops get smaller." This statement refers to the yield forecasting cycle of the USDA's National Agricultural Statistics Service (NASS). That cycle for corn and soybeans consists of monthly yield forecasts that begin in August and extend through November and culminate with the final yield estimate for the season that is released in January following harvest. Specifically, the statement implies that early NASS yield forecasts are "conservative" in years when yields are high and get larger as the forecast cycle progresses and are "optimistic" in years when yields are low and get smaller as the forecast cycle progresses. These notions are tied to the more general idea that NASS yield forecasts are "smoothed," meaning that the final yield estimate results from cumulative monthly changes in forecasts in the same direction. Some tend to believe that smoothing of NASS yield forecasts, particularly in years of yield extremes, is intentional in order to minimize or spread the price impact of very large or small yields. Alternatively, yield forecasts may appear to be intentionally smoothed simply due to the fact that forecasts become more accurate during the forecast cycle as more actual yield information is incorporated into the forecasts.
Four consecutive years of lower commodity prices has nearly exhausted the financial resources of U.S. grain farmers. Todd Gleason looks into the problem with an agricultural economist from the University of Illinois.
Farmers in the United States are about to harvest one of their best corn crops ever and prices are low. They may need to hang on to the crop for while if they want a better offer, and that could take a shift to soybeans next spring.
The United States Department of Agriculture judges this year’s corn crop to be a record breaker. If it all comes in as predicted in USDA’s September reports there will be none bigger, and the market believes it so far. The price of corn has dropped about a dollar a bushel since earlier in the summer. This price isn’t likely to change much thinks Darrel Good until some new information comes along in one of the USDA reports, and that might not be until next spring.
As long as we have that kind of carryover prospects, the market sees no reason to push prices higher to reduce consumption.
- Darrel Good
The big response he’ll be looking for is in U.S. acreage next spring, says Good. The agricultural economist suggests the price of corn now, when compared to the price of soybeans, should result in some acreage shift from corn to soybeans next years. This could result in some relief on the supply side of the corn market.
This shift, if it comes, would be from farmers responding to market signals. Right now the price of soybeans compared to corn suggest farmers in the United States should seriously consider changing up next year’s crop mix, planting more soybeans. As for marketing this year’s corn crop, well, Darrel Good says it’s a waiting game for corn, and may very well be directly related to the acreage response.
There is some carry in the market. It is not huge. Prices remain fairly low. You’d say storage is a better option for corn, but you’ll have to store it at least through the first of the year, maybe into the spring of the year, before you could anticipate much of a rebound in spot prices.
- Darrel Good
Darrel Good writes about the commodity markets each Monday. The articles are posted to the FarmDocDaily website.