Corn prices have settled into a relatively narrow trading range, with December 2009 futures trading between $3.20 and $3.50 per bushel over the past 3 weeks. The relatively low price level reflects the anticipation of a large harvest in 2009, says Darrel Good, University of Illinois economist.
The USDA will release the first survey based corn yield projection on August 12. The consensus seems to be for at least a modest reduction in acreage compared to intentions, Good says. Since acreage estimates for soybeans are also updated in August, the report will give some insight into the magnitude of unplanted acreage.
"Observation suggests that several thousand acres were not planted this spring, but this report will reveal if the total is large enough to alter production expectations of corn or soybeans," he says. "It is generally expected that the August USDA reports will continue to point toward an ample supply of corn for the 2009-10 marketing year.
"The state-by-state yield projections, along with the marketing-year average farm price projection, will have important implication for those who are evaluating the Average Crop Revenue Election (ACRE) program. Prospects for a 2009-10 average farm price well below the average for 2007-08 and 2008-09 increases the expectation that ACRE payments could be triggered at the state level in 2009-10, even if state average yields are relatively high."
Prospects for a relatively low yield in any state will increase the likelihood that ACRE payments will be triggered, Good adds. Prospects for a lower price will also increase expectations that farm level payments will be triggered, although prospects for farm level yields will have to be evaluated carefully. Unusually high average farm yields could offset the impact of a lower price, Good says.
"If a large corn crop does materialize in 2009 and prices remain low through harvest, crop revenue insurance payments may also be triggered, particularly for those producers who experience lower yields," Good says. "A combination of crop revenue insurance payments and ACRE payments could help offset the financial impact of lower average corn prices during the year ahead.
"For now, additional sales of 2009 crop corn are not appealing. December futures remain well below the crop revenue insurance guarantee. With the market generally expecting a very large 2009 harvest, additional downside price risk may be minimal for the time being."