December corn futures have increased by about 65 cents per bushel form the early September low, while November soybean futures have rallied more than $1 per bushel from the low earlier this month.
These increases have come in the face of larger USDA crop forecasts, says University of Illinois economist Darrel Good, and are an indication that the final harvested crop won't reach those forecasts.
Good says the U.S. corn yield forecast is about equal to the average of a forecast based on crop-condition ratings and growing-season weather. However, the U.S. soybean yield forecast is still lower than the forecast based on crop-condition ratings and the forecast based on growing-season weather.
"In a more 'typical' year, yield forecasts of both corn and soybeans might be expected to increase in November," Good says. "This, however, is not a typical year."
"Freezing temperatures this past weekend likely ended the growing season for late-maturing crops in northern and western growing areas before full yield potential was reached. In addition, more widespread incidence of disease in both crops may reduce yield and quality potential."
As a result, the November forecasts of yields are now more likely to decline rather than increase, Good says.
In addition to concerns about the size of the crops, prices have been influenced by strong demand in some sectors, Good says.
"For corn, the ethanol industry has experienced a substantial economic recovery," he says. "The economics of blending ethanol are very favorable, increasing the demand for and price of ethanol."
Even with higher corn prices, Good says ethanol production has moved solidly back into the black. The USDA did not increase the forecast of corn use for ethanol during the current marketing year, but many analysts believe there is potential for use to exceed the projection of 4.2 billion bushels. Part of that optimism may stem from the potential to export some ethanol, he says.
Good says the USDA did lower the projection of 2009-10 marketing-year corn exports by 50 million bushels, but increased the feed and residual component by 50 million bushels.
"The year-over-year increase of 169 million bushels in feed and residual use appears generous in the face of declining livestock numbers and a large increase in distiller’s grain production, even with reduction in feed use of other grains," Good says. "Still, year-ending stocks of 1.672 billion bushels are not large and could be less if the crop is smaller and ethanol use larger than projected."
For soybeans, God says the demand strength has been in the export sector. The USDA now projects 2009-10 marketing-year exports at a record 1.305 billion bushels, 25 million above both the September projection and actual exports of last year.
Soybean export sales have been very large to date, he says. As of Oct. 1, the USDA reported soybean exports plus outstanding sales at 758 million bushels, 350 million more than commitments of a year earlier. China accounts for 61% of export sales to date.
Like corn, the projection of year-ending stocks of U.S. soybeans at 230 million bushels is not large and could be less if the crop is smaller than currently projected, he says.
"On-going crop concerns could add to the recent price strength in both corn and soybeans," Good says. "Higher prices probably should move producer pricing strategies to less storage and more harvest-time pricing."