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Illinois
AgriNews - March 2004
 
Tracking Corn Market Fundamentals
Scott Irwin and Darrel Good
Department of Agricultural and Consumer Economics
University of Illinois at Urbana-Champaign
The record US corn crop of 2003 was
not enough to satisfy domestic and world
needs, resulting in high prices and declining stocks.
Early prospects suggest a
continuation of strong demand in the 2004-05 marketing
year, led by increases in ethanol
production and declining Chinese exports, requiring
another large harvest in 2004. This
environment of strong demand and uncertain production
suggests a continuation of high,
but volatile prices and marketing challenges for producers
over the next several months.
It will be important to keep current with changing supply
and demand prospects and the
implication for prices.
To assist in this task, a US CORN BALANCE SHEET AND
PRICE TOOL has
been developed at the University of Illinois and is
available at the farmdoc website. The
tool consists of (1) a completed balance sheet for the
past year and (2) the balance sheet
estimates for the current and the next marketing year.
For the current and next marketing
year, users may alter estimates of production and consumption
and the TOOL will
recalculate the ratio of year ending stocks to total
use and the projected marketing year
average price. The projected average price is based
on the relationship between the ratio
of stocks to use and price in the years from 1998/99
through 2002/03. The forecast should
be used only as a general guide since there is not a
perfect relationship between the ratio
of stocks to use and the average price.
Also available for downloading is an Excel spreadsheet
version of the US CORN
BALANCE SHEET AND PRICE TOOL that can be used in the
same manner as the online
version. In addition, the spreadsheet version can be
used to calculate an estimate of
the marketing year average price based on average prices
received to date and current
futures prices for the remainder of the marketing year.
The spreadsheet is updated
monthly to include average prices received to date for
the current marketing year. The
user can input the current prices for the futures contracts
indicated for the remainder of
the current crop year and for the next crop year. For
those months, the spreadsheet
calculates an estimate of monthly average cash price
based on an estimate of the average
national basis. The estimates of monthly cash prices
are weighted by the average
percentage of the crop marketed in each month from September
through August in the
previous 5 years. The result is a calculation of the
forecast of the marketing year average
price reflected by average prices received to date and
current futures prices for the
remainder of the year.
The spreadsheet version of the TOOL allows the user
to compare the average
marketing year price forecast by the market to the average
price forecast by expected supply and demand factors. The difference in these forecasts may be used as a general
guide to making pricing decisions.
Complete instructions for using the tool are found at
the following farmdoc link: http://www.farmdoc.uiuc.edu/marketing/corn_balance_tool/corn_balance.asp
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