Corn and soybean prices have declined sharply since the release of the USDA’s November Crop Production report that contained smaller forecasts of the size of the 2011 harvest for both crops. In addition, the historically strong corn basis has begun to weaken in many markets.
The recent price behavior suggests that the market believes that the combination of very high prices in the late summer and early fall and weaker demand prospects have been sufficient to ration the relatively small crops. Weaker export demand prospects stem from a combination of increased competition from other exporters and concerns about world economic and financial conditions. For corn, the competition is from the large corn and wheat crops in 2011 while soybean export demand is being influenced by prospects of another large South American harvest in 2012. While world financial conditions are deteriorating, the impact on world grain consumption may be over stated. The record large exports of U.S. pork and beef in the face of record high prices provide evidence that world demand for food remains very strong. Foreign crop production prospects will dominate the outlook for U.S. crop exports. <Read More>
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