Commodity Price Update. Monday October 11, 2010

Commodity prices have soared since Friday morning when the USDA released their October Crop Production report. From Friday morning to the end of the trading on Monday October 11, 2010 Corn price has climbed over 11 %, soybeans are up over 8%, and wheat is up over 7%. Price increases were being driven by the significantly lower than expected US average corn production number of 12.6 billion bushels, which was almost 500 million bushels smaller than the September report. Corn acreage was increased while yield was significantly reduced. Additionally, US average soybean production was reduced by 75 million bushels from the September report to 3.4 billion bushels.
News of the USDA report shocked commodity prices, pushing corn and soybeans to daily price limits ($.30 per bushel for corn and $.70 for soybeans). This type of price volatility will get (and keep) everyone in commodity markets uneasy. Producers are faced with increased pressure to sell since prices have moved limit up. Purchasers are meeting in board rooms attempting to figure out strategies to minimize the effect of an 11% price increase. Lots of uncertainty remains in the market. This leaves room for additional significant price movement (this doesn’t mean always up) over the coming months. Significant price increases will eventually show up on the demand size as reductions in use. This will bring back some ending stocks and likely bring prices down. When this will happen? – Don’t know.
Profit is the objective for the producer. Producers have to decide whether the current profit levels are acceptable, knowing lots of uncertainty exists in both prices and yields (if you’re considering selling 2011 crop). The 2011 acreage battle has just begun. Expect high price volatility over the coming months as the market attempts to figure out the size of the U.S. corn crop, corn consumption levels, South American crop size and condition, the state of the U.S. economy, and the state of the U.S. ethanol industry. Questions and comments can be directed to Cory Walters, University of Kentucky Extension Grain Economist. Email: cgwalters@uky.edu