Weather-related concerns about the potential supply of corn next year and more optimism about near-term demand for corn have fueled the recent rally in corn prices, according to Dr. Darnell Good, agricultural economist with the University of Illinois.  Good explains in an AgWeb.com report that the on-going wet weather in Argentina may reduce the magnitude of planted area of corn relative to intentions. Fewer acres would threaten the projected rebound in production.

USDA has forecast the 2013 Argentine harvest at a record 1.1 billion bushels, a third larger than the drought-reduced harvest of earlier this year. Another, and perhaps, more troubling concern for the upcoming U.S. corn crop is the continuing widespread drought conditions in the Corn Belt.

The latest U.S. drought monitor map shows exceptional drought conditions in large portions of the plains states and severe to extreme drought conditions extending to the Mississippi River and in northern Illinois and southern Wisconsin. Significant drought conditions also persist in some southeastern states. Very dry soil conditions underscore the need to replenish soil moisture and for timely rain during the 2013 growing season. The production risk of continuing drought conditions is being balanced against the potential of a record corn harvest if acreage is not reduced and 2013 growing season weather is generally favorable for corn yields. The balancing act is reflected in futures prices for the 2013 crop that are below old-crop prices, but high by historic standards, Good noted.

Good also said that the pace of U.S. corn exports remains very low, but some increase in the demand for U.S. corn is expected yet this marketing year. Export inspections during the first 13 weeks of the marketing year totaled only 208 million bushels, 48 percent less than cumulative inspections of a year ago. The weekly rate of inspections needs to increase from the current average of 16 million bushels to 24 million in order to reach the projection of only 1.15 billion bushels for the year.

Unshipped export sales totaled only 278 million bushels as of November 22, 238 million bushels less than on the same date last year. New sales need to average 17 million bushels per week for sales to reach 1.15 billion bushels. Sales exceeded that average for the two weeks ended November 22 and the more rapid pace may continue as supplies of competing grains are reduced.

U.S. ethanol production continues to be well below the rapid pace of a year ago. Production last year, however, was accelerated by the impending end to the blenders’ tax credit. Through the first quarter of the 2012-13 marketing year, cumulative ethanol production was about nine percent less than during the same period last year.

USDA has projected a 10-percent decline in the amount of corn used for ethanol production during the current marketing year. The decline in expected ethanol production reflects the plateauing of domestic consumption, increasing imports from Brazil, and steady-to-declining exports of ethanol. The so-called blend wall will continue to limit domestic ethanol consumption and production, but corn use this year should at least reach the USDA projection.

Interestingly, Good reports that the rate of feed use of corn is not known. USDA projects use for the year at only 4.15 billion bushels, nearly nine percent less than apparent use of last year. However, marketing year feed and residual use estimates and projections are confused by the harvest of a large quantity of corn before the start of the 2012-13 marketing year on September 1.

Current livestock inventories, slaughter numbers, and slaughter weights suggest strong overall feed demand. The number of cattle on feed on November 1 was five percent less than that of a year ago, but the number of dairy cows during October was only 0.3 percent less. The placement of broiler-type chicks during the first four weeks of November was only 0.7 percent less than those of a year ago. The average number of layers on hand during October was 1.4 percent more than that of a year earlier. October hog slaughter was record large and exceeded that of a year ago by 10 percent. Average cattle and hog slaughter weights in October were near those of a year ago.

USDA’s December 1 stocks estimate and 2012 final U.S. production estimate will be released on January 11 and will add some clarity to corn market fundamentals. Current conditions point to continued strong corn prices until then, Good concluded.

In another report, analysts looking at the soybean market predict the possibility that soybeans at the extreme could either be $8 per bushel or $22  per bushel next fall, according to AgWeb.com. “Volatility and uncertainty best describe the soybean market,” says Dan O’Brien, agricultural economist at Kansas State University. With tight global supplies of soybeans, weather in Brazil and Argentina will be key. If weather looks good as it was in late November, prices could moderate. Just a hint of production problems in South America this winter could send bean prices higher though, O’Brien said.  “There are some real logistical issues in Brazilian port regions,” O’Brien noted. “It’s one thing to grow the beans, quite another to get them into global shipping channels” he added.

Between now and spring, prices are likely to hover somewhere in the $13 per bushel to $16 range, O’Brien predicted. If no production problems develop, he thinks a window of $14 to $14.50 per bushel this winter is in the range of the probable, with a great South American crop “possibly taking us to $13.”

Most farmers have sold their 2012 corn, but they have stored beans, and market players know this. Still, back-to-back droughts, while improbable, are not impossible, Mark Gold, president and COO of TopThird Ag Marketing said. “Next year, farmers in the United States will likely plant the largest soybean crop in history,” adds Steven Johnson, farm management specialist at Iowa State University. He predicts that growers will plant 80 million acres of beans, up 3 million from the 77 million they planted this year.  Johnson indicates the increased soybean acres will occur because less corn following corn will be the situation.  Western Corn Belt producers who were hit hard by drought are likely to boost their bean acreage at the expense of corn. Because of those factors, he predicts a softer landing for soybean prices, a 65  percent probability that 2013-14 prices will average $12.50/bushel, based on trendline yields.

Price seasonality for soybean has changed. The highs in soybean prices have shifted the past five years to July and August, after the world has run out of South American crops and is waiting for the U.S. harvest, Johnson concluded.