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What Does the Market Say About Crop Size
| Content Provider | Semantic Scholar |
|---|---|
| Author | Good, Darrel |
| Copyright Year | 2003 |
| Abstract | The USDA will release new estimates of the potential size of the 2003 corn and soybean crops on September 11. These estimates will be the most important price factors for several weeks, or longer. There is more than the usual amount of uncertainty about the magnitude of the September estimates this year. First, the August estimates were smaller than expected, prompting some to think that the USDA had factored a forecast of a hot, dry August into the August estimates. However, the USDA August estimates reflect the assumption of normal or average weather conditions subsequent to the time of data collection. Second, August weather conditions resulted in an historic decline in crop condition ratings during the month. Third, widespread precipitation arrived during the last few days of August, raising questions about the potential yield benefits of such late precipitation. Fourth, there is some uncertainty about the impact of adverse weather conditions in some western states on the magnitude of acreage that will be harvested for grain. While it is difficult to anticipate the size of the September estimate, or final crop size, it is interesting to ponder what crop size is reflected in current price levels. One approach is to examine the magnitude of price changes that occured in July and August as production expectations changed and then to infer current expectations about crop size from recent price changes. This approach clearly has limitations and, in particular, assumes that no market fundamentals except expected crop size have changed significantly over the past two months and that the market was correctly priced in July. In the case of corn, December 2003 futures traded near $2.20 in early July on the expectation of a 10.3 billion bushel crop and reached a low of about $2.10 in late July when there was considerable talk of a potential crop of 1 0.5 billion bushels. By August 11, the day before the release of the USDA production estimate, December futures settled at $2.18. The average trade guess for the USDA corn crop estimate was reported at 10.29 billion bushels. On August 12, and for the next few days, December futures traded around $2.30, reflecting the August crop estimate of 10.064 billion bushels. This crude analysis suggests that for every 100 million bushel change in expected crop size over that period the price of corn changed about $.05 per bushel. Currently, December futures are $.13 higher … |
| File Format | PDF HTM / HTML |
| Alternate Webpage(s) | http://www.farmdoc.illinois.edu/marketing/weekly/pdf/090803.pdf |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
