As I write this column in mid-February, corn and soybean prices are being supported by lack of farmer movement and dry weather throughout most of the Midwest.

Following a short crop price peak near harvest, this type of supportive price action into late winter or early spring is very common. This is the type of year markets normally give farmers two chances to sell: at harvest, and then another rally in late winter or early spring.

As we go into this marketing pattern, old rules of thumb such as, “always store a big crop” and “short crops peak early and have a long tail” will apply this year. One of my favorites is “we have never lost a corn or soybean crop due to a February drought.” History screams loud and clear that winter weather rallies in corn and soybean markets should be sold, and this one will likely be no exception.

Where After The Winter Rally

Last year U.S. farmers planted 79.1 million acres of corn and 73.8 million acres of soybeans. There will undoubtedly be a shift to more corn acres this year. We're pegging it at 81 million acres. Soybean acres will likely drop from this past year's 73.8 million to as low as 72 million acres. My bullish, average and bearish scenarios in the tables below give you a clue as to what might happen with prices, depending on yields, with this level of planted acreage.

U.S. Corn 2003-2004 Brock Estimates
Bullish Average Bearish
Supply:
Beginning stocks 929 929 929
Production 9,828 10,318 10,742
Imports 10 10 10
Total supply 10,767 11,257 11,681
Usage:
Food/seed 2,310 2,310 2,350
Feed/residual 5,650 5,650 5,650
Exports 2,050 1,900 2,000
Total usage 10,010 9,860 10,000
Ending stocks: 857 1,397 1,681
CCC stocks 5 5 5
Free stocks 752 1,392 1,676
Average price: $2.40-3.20 $1.80-2.10 $1.70-2.00
Acreage:
Planted 80.0 81.0 82.0
Harvested 72.8 73.7 74.6
Yield per acre 135.0 140.0 144.0
Free Stocks/Use Ratio 7.5% 14.1% 16.8%
* Supply, usage and ending stocks are in million bushels, acreage in million acres, yield in bu/acre.
U.S Soybean 2003-2004 Brock Estimates
Bullish Average Bearish
Supply:
Beginning stocks 165 175 180
Production 2,601 2,797 2,868
Total supply 2,786 2,974 3,050
Usage:
Crush 1,640 1,660 1,700
Exports 850 880 850
Seed/Residual 165 165 165
Total usage 2,695 2,705 2,705
Ending stocks: 113 269 345
Average price: $5.50-6.50 $4.50-5.00 $4.00-4.75
Acreage:
Planted 71.5 72.0 73.0
Harvested 70.3 70.8 71.7
Yield per acre 37.0 39.5 40.0
Free Stocks/Use Ratio 4.3% 9.9% 12.8%
* Supply, usage and ending stocks are in million bushels, acreage in million acres, yield in bu/acre.

Another note:

One thing we should have learned from last year is that corn hybrids are much more drought-resistant today than they were five years ago. Another bit of history is that, in the year following a significant drop in yields, corn yields typically bounce back to trend line or higher. That's why we're using an average estimated yield of 140-bu corn vs. this past year's yield of 130.

To put it another way, with normal weather carryover, this coming year would jump from the current level of 929 million bushels to 1.397 billion bushels. That would translate to an average farm price of $1.80-2.10. With December futures currently trading higher than $2.45, fundamentally this is a market that's overpriced.

As you can see in the corn table, it will take another poor production year for carryover supplies to be cut. With an above-normal growing year, carryover will jump to an excess of 1.6 billion bushels.

Soybeans are another story. Supplies are currently very tight, but South America is producing another record crop. Stocks-to-usage ratios, which have historically been our benchmark for predicting prices, can now be thrown out the window for soybeans. Since South Americans raise more soybeans than do U.S. farmers, old historical relationships no longer work.

Soybean acres will undoubtedly drop slightly this year and a normal trend-line yield would be about 39½ bu/acre. With that size crop, supplies are still going to be relatively small by historical standards, but certainly not tight.

Parting Thoughts:

I will be the first to admit that from a price perspective I don't know where the rally in soybeans and corn will stop. From a timing perspective, however, the highs for the remainder of this year will likely occur before you plant. Last year was a year to store grain, that may not be very lucrative this year.


Richard A. Brock is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report. For a trial subscription and information on Brock services, call 800-558-3431 or visit www.brockreport.com.