AG-ECO NEWS
Vol. 24, Issue 15, May 15, 2008 – PDF version
Jose G. Peña
Texas AgriLife Extension Economist-Management
Initial New Crop Forecast: Less Corn and Cotton;
More Wheat and Soybeans Markets Remain Strong
USDA’s initial new crop forecast for the 2008/09season, based on the March 31, 2008 Prospective Plantings report, the historical harvested-to-planted ratio and trend yields, indicated reduced corn and cotton production and higher wheat and soybean production. Corn, soybean and cotton futures markets rallied on the report release date (5-9-08), after recent weakness, made a slight market downward correction on Monday (5-12-08), when this report was prepared, but markets are still providing excellent new crop pricing opportunities. (See Figure 1). 
It appears that planting delays in the corn belt as a result of too much rain are contributing in the market hesitation. But, record high crude oil prices and continuing expectations of even higher prices are helping to keep markets propped up. With corn closely tied to legislated demand for ethanol, changes in prices for crude oil, have a significant impact on grain commodity markets. In addition,while the new crop export forecast is down about 16 percent from this past season’s exports estimate, continuing relatively strong export demand (in relation to 2003-05) for grains is helping markets.
December ‘08 corn futures contracts jumped to close at life-of-contract highs of $6.50/bu on the report release date, but corrected downward about 12.2 cents on Monday(5-12-08) to close at $6.37/bu. (See Figure 1a). Near-by(May ‘08) corn futures contracts closed at about $6.03/bu on Monday (5.12.08) after life-of-contract highs of about $6.13/bu on the report release date.
Kansas City July wheat futures contracts closed at $8.43/bu. on Monday, just three cents lower than on Friday, after dropping from life-of-contract highs of around $12.77/bu. in early March. (See Figure 1b)
While supply/demand fundamentals do not appear to support a major cotton market rally, it appears the recent improvement in the cotton market is associated with market spill-over from grain markets. December ‘08 cotton futures contracts closed at about 80.23 cents per pound on the report release date and were up again slightly on Monday (5-12-08), after dropping from life-of-contract highs of about 95.5 cents a pound on March 5, 2008. (See Figure 1c).
Near-by (May ‘08) soybean futures closed the limit up on the report release date at about $13.50/bu. and corrected downward slightly on Monday to close at about $13.35/bu.
Corn
USDA’s May 9, 2008 initial new corn crop forecast for the 2008/09 season at 12.1 billion bushels is down 7.3 percent from the record 2007/08 crop of 13.074 billion bushels. The national yield estimate was projected at 153.9 bu./acre, down slightly from 1990-2007 trend but up 2.8 bushels from this past season’s national average of 151.1 bu./acre. U.S. corn planting is behind schedule due to wet fields. According to the USDA-NASS Crop Progress report of May 12, 2008, corn planting is only 51 percent complete, compared to a 2003-07 average of 77 percent at this same time.
While the estimate of new crop corn use for ethanol production increased by one billion bushels to 4 billion, total U.S. corn use decreased by 1.9 percent as reductions in feed and residual use and exports more than offset the one billion increase use of corn for ethanol production. The estimate of new crop corn exports was dropped 16 percent from this past season as U.S. supplies face increased world competition with increased foreign production and a sharp drop in EU-27 imports.
With total corn use expected to exceed production by 635 million bushels, ending stocks are projected down 44.8 percent from this past season’s ending stocks of 1.383 billion bushels. At 763 million bushels, ending stocks would be the lowest since 1995/96. USDA’s estimates the season-average price at $5.00 to $6.00 per bushel, well above the current year’s forecast record of $4.10 to $4.40 per bushel.
Cotton
While USDA’s May 9, 2008 new U.S. cotton crop production estimate at 14.5 million bales, is down 24.5 percent from 19.21 million bales produced last year, large carry-in stocks from that large crop and a lower estimate of domestic use appear to indicate a questionable-to-bearish market outlook for the rest of this season. The cotton market has been volatile since early March ‘08, but the market outlook for the new crop appears bright in relation to the recent past as evidence by Monday’s (5-12-08) December ‘08 closed at about 80 cents/lb.
USDA’s May 9, 2008 supply/demand report included sharply lower production and ending stocks compared with 2007/08. The new crop production estimate at 14.5 million bales is down 24.5 percent from 2007/08 season, based primarily on reduced planted area in the March 31, 2008 Prospective Plantings report, combined with historical average abandonment and trend yields. Domestic mill use was reduced by 300,000 bales from 2007/08 season to 4.3 million bales, but exports were raised slightly to 14.5 million bales. While the estimate of ending stocks was reduced by 43.4 percent from beginning stocks of 9.9 million bales ending stocks remain at a pesky 5.6 million bales. (See Table 1).
| Table 1. U.S. Corn and Cotton Supply/Demand¹ | |||||||
| Corn | |||||||
| Item | 2003/04 | 2004/05 | 2005/06 | 2006/07 | 2007/08 | 2008/09² | %CHNG |
| Planted Acreage | 78.60 | 80.93 | 81.80 | 78.30 | 93.60 | 86.00 | -8.1% |
| Harvested Acreage | 70.94 | 73.63 | 75.10 | 70.60 | 86.50 | 78.80 | -9.8% |
| Yield 1/ | 142.20 | 160.36 | 148.00 | 149.10 | 151.10 | 153.90 | 1.8% |
| Supply | Million Bushels | ||||||
| Beginning Stks. | 1,087 | 958 | 2,114 | 1,967 | 1,304 | 1,383 | 6.1% |
| Production | 10,089 | 11,807 | 11,114 | 10,535 | 13,074 | 12,125 | -7.3% |
| Imports | 14 | 11 | 9 | 12 | 15 | 15 | 0.0% |
| Total Supply | 11,190 | 12,776 | 13,237 | 12,514 | 14,393 | 13,523 | -6.0% |
| Disappearance | |||||||
| Feed and Residual | 5,795 | 6,158 | 6,155 | 5,598 | 6,150 | 5,300 | -13.8% |
| Food, S eed, & Industrial | 2,537 | 2,686 | 2,981 | 3,488 | 4,360 | 5,360 | 22.9% |
| Total Domestic Use | 8,332 | 8,844 | 9,136 | 9,086 | 10,510 | 10,660 | 1.4% |
| Exports | 1,900 | 1,818 | 2,134 | 2,125 | 2,500 | 2,100 | -16.0% |
| Total Use | 10,232 | 10,662 | 11,270 | 11,211 | 13,010 | 12,760 | -1.9% |
| Unaccounted | |||||||
| Ending Stks. | 958 | 2,114 | 1,967 | 1,304 | 1,383 | 763 | -44.8% |
| Ending Stks/Use | 9.36 | 19.83 | 17.45 | 11.63 | 10.63 | 5.98 | -43.7% |
| Average Farm Price 3/ | 2.42 | 2.06 | 2.00 | 3.04 | 4.25 | 5.5 | 29.4% |
| Cotton | |||||||
| Item | 2003/04 | 2004/05 | 2005/06 | 2006/07 | 2007/08 | 2008/09² | %CHNG |
| Planted Acreage | 13.48 | 13.66 | 14.25 | 15.27 | 10.83 | 9.39 | -13.3% |
| Harvested Acreage | 12.00 | 13.05 | 13.80 | 12.73 | 10.49 | 8.39 | -20.0% |
| Yield 1/ | 729.94 | 855.00 | 831.00 | 814.00 | 879.00 | 830.00 | -5.6% |
| Supply | Million Bales | ||||||
| Beginning Stks. | 5.39 | 3.45 | 5.50 | 6.05 | 9.48 | 9.90 | 4.4% |
| Production | 18.26 | 23.25 | 23.89 | 21.59 | 19.21 | 14.50 | -24.5% |
| Imports | 0.05 | 0.03 | 0.03 | 0.02 | 0.02 | 0.02 | 0.0% |
| Total Supply | 23.70 | 26.73 | 29.42 | 27.66 | 28.71 | 24.42 | -14.9% |
| Disappearance | |||||||
| Feed and Residual | |||||||
| Food, S eed, & Industrial | |||||||
| Total Domestic Use | 6.27 | 6.67 | 5.87 | 4.95 | 4.60 | 4.30 | -6.5% |
| Exports | 13.76 | 14.44 | 17.55 | 13.01 | 14.20 | 14.50 | 2.1% |
| Total Use | 20.03 | 21.13 | 23.42 | 17.96 | 18.80 | 18.80 | 0.0% |
| Unaccounted | 0.21 | 0.11 | -0.06 | 0.22 | 0.00 | 0.02 | 0.0% |
| Ending Stks. | 3.45 | 5.50 | 6.05 | 9.48 | 9.90 | 5.60 | -43.4% |
| Ending Stks/Use | 17.22 | 26.03 | 25.83 | 52.78 | 52.66 | 29.79 | -43.4% |
| Average Farm Price 3/ | 61.80 | 41.60 | 47.70 | 46.50 | 56.40 | N/A | 0.0% |
| 1 Bushels for corn; pounds for cotton 2 USDA/NASS/WASDE May 9, 2008 3 Marketing-year weighted average price received by farmers |
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The world’s cotton situation in USDA’s May 9, 2008 supply/demand report included a combination of slightly lower production and slightly higher consumption is expected to reduce world stocks in 2008/09. World production is forecast at 118 million bales, down two percent from this past season, as higher foreign production partially offsets a reduction in the U.S. World consumption is projected at 127 million bales, up about two percent from this past season, reflecting a slight recovery from 2007/08, but well below the recent 5-year average growth.
NOTE: The House passed the Farm Bill on Wednesday (5.14.08) and the Senate was expected to pass the bill on Thursday. The general consensus is that there is enough support in Congress to override a presidential veto if the president vetoes the bill.