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Corn market takes a ‘sit back and watch' attitude
With 95 percent of the 2005 corn harvest completed by Nov. 13, farmers put away their machinery, began working on paperwork and marketing, and took account of what had been accomplished.

Most farmers across the Corn Belt were pleased with their 2005 corn yields. Despite an early season drought, yields were generally above five-year trends. USDA's Nov. 10 crop production report indicated U.S. corn production had reached 11 billion bushels - up 2 percent from a month earlier, but 7 percent below the record-breaking 2004 corn crop.

Based on conditions as of Nov. 1, yields are expected to average 148.4 bushels/acre across the United States - in what was considered a drought year in some locations.

Minnesota was definitely a winner in corn production in 2005. Yields averaged 171 bushels/acre, up 12 bushels/acre from a year ago. North Dakota's yields showed a 20-bushel/acre increase from one year ago - with the crop averaging 125 bushels/acre compared with 105 bushels in 2004. Drought conditions were tougher on South Dakota, where corn yields dropped an average of 7 bushels - from 130 bushels in 2004 to 123 bushels/acre in 2005.

Wisconsin's yields (150 bushels/acre) were up an average of 14 bushels this year vs. one year ago. Iowa's average yield of 175 bushels/acre was down an average of 6 bushels per acre from year ago, due to dry conditions in the southeast. Iowa still remains King Corn, though, with production of 2.178 billion bushels - a full billion bushels more than fourth-placed Minnesota.

Illinois recovered significantly from the very dry conditions of the first half of the growing season, said Darrell Good, University of Illinois Extension grain marketing economist. “The surface moisture now is pretty good, but subsoil moisture is still deficit,” said Good. “We have some ground to make up in most areas.”

USDA pegged Illinois' average yield at 145 bushels/acre vs. 180 bushels one year ago - a decrease of 35 bushels but still an average of 40 bushels per acre higher than estimated earlier this year.

“Most Illinois farmers were pleasantly surprised by the final yields,” said Good. “The really hard hit areas of northwest Illinois - yields were pretty poor and about as expected. But those areas that picked up a couple inches of rain in early July from Hurricane Dennis - those areas turned out with very good yields.”

For the past two U.S. growing seasons, the corn crop has recovered from what looked like very serious conditions.

But Good doesn't expect traders to rethink how they make speculator decisions throughout the growing season. Good looked at the records of Louis Thompson, an agronomist/climatologist at Iowa State University. Thompson developed a crop yield model based on weather variables, and the University of Illinois used Thompson's model to look at weather patterns and yields over the past 30 years for Illinois and Iowa.

“When you plug in the state's average precipitation and temperature this year, along with the trend variable, that model predicts the Illinois corn yield within 3-4 bushels,” said Good. “I think what that says is we got overly pessimistic this year, but based on actual weather conditions, yields were about where they should have been.

The surprising yields came in Iowa that topped Thompson's expected yields from the model.

“Weather is still important - but timeliness is another important factor,” said Good. “The variability within the growing season will remain. Traders will still trade the weather.”

Many farmers are wrapping up their marketing plans for corn through the rest of this year. They are storing as much corn as they can, and capturing the LDP as appropriate.

Producers are now sitting on their corn un-priced or they forward contracted some of the crop - some for January through July delivery - in order to capture the large premiums available during harvest.

On the Chicago Board of Trade, corn on Nov. 17 closed with December 2005 at $1.92 1/2; March at $2.06 1/2; May at $2.15 1/2; July at $2.22; September at $2.30 1/2 and December 2006 at $2.41 1/2.

Prices across the Board were about 3 cents lower than in early November.

According to the Chicago Board of Trade website, continued bird flu concerns triggered fund selling and lower prices.

Improved weather conditions in South America also influenced the market negatively.

On the plus side, corn exports were good at 1.496 million metric tons (58 million bushels), compared with trade expectations for 800,000 to 1 million metric tons (31-39 million bushels).

Total corn exports for the 2006 export year reached 33.5 percent, compared with 35.3 percent on average for the last five years.

“Everyone is watching exports,” said Good. “That's the only real information we're getting on the demand side right now. When we get the December stocks report in a couple of months we'll have more information, but for now - watching the exports is the main fundamental market factor.”

On a cash basis, corn at elevators across the upper Midwest ranged from $1.25-1.55 on Nov. 17 according to the Toolshed Ag Information Network. Those prices were from 8 cents lower to 4 cents higher than prices in early November, showing increased variability in local basis.

At one elevator in west central Minnesota, corn on Nov. 17 was $1.58 with a basis of 49 cents under. Compared with two weeks earlier, that price was 7 cents higher but the basis had widened by 4 cents.

The posted county price on Nov. 17 was $1.45 at this particular elevator and the LDP was 41 cents - 8 cents less than in early November.

“Sitting on un-priced corn at this time of year, at these price levels is not a bad decisions, but it may be awhile into spring before we can expect the market to rally very much,” said Good. “Clearly there are implications from a cash flow standpoint - those that don't want to take an LDP for awhile may have to wait awhile for some cash. Putting the corn under loan is an alternative."
MGR Archive 5.12.2005
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