AG-ECO NEWS
Jose G. Peña
Professor & Ext. Economist-Management
Vol. 26 Issue 30
October 28, 2010
Grain and Cotton Markets Continue to Surge
Providing Excellent Pricing Opportunities for 2011 Crops
Jose G. Peña, Professor and Extension Economist-Management
Prices for grain and cotton continue to show significant strength. While it may be difficult for farmers to take
advantage of this season’s market surge, the market
Figure 1: Wheat, Corn and Cotton Futures Prices
Figure 1a JULY ‘11 - WHEAT
crops. (See Figure 1),
Near-by futures prices for corn and cotton
jumped to record highs this past week. The surge in
Settlement Price
Cents/Bu.
is providing excellent pricing opportunities for 2011
corn began as USDA’s October 8, 2010
supply/demand report lowered the U.S. corn
Figure 1b DEC. 2010 vs. Dec. 2011 - CORN
600
production estimate by almost one-half billion
560
440
400
360
10/26/10
10/1/10
9/1/10
8/2/10
7/1/10
6/1/10
5/3/10
4/1/10
3/1/10
prices, heavily influenced by concern that global
2/1/10
320
1/4/10
almost 20 cents this past week to record high futures
480
12/1/09
May 2010. Near-by cotton futures prices jumped
Cents/Bu.
520
bushels after forecasting a record corn crop since
December 2010
Settlement Price
December 2011
Settlement Price
demand, especially from China, may exceed supplies
Figure 1c DEC. 2010 vs. Dec. 2011 - COTTON
120
December 2010
Settlement Price
Earlier, it appeared that the market
80
70
10/26/10
10/1/10
9/1/10
8/2/10
6/1/10
5/3/10
4/1/10
3/1/10
60
2/1/10
prepared, but markets remained relatively strong.
90
1/4/10
Wednesday (10/27/10), when this report was
December 2011
Settlement Price
100
12/8/09
Corn and cotton futures weakened on
Cents/lb.
110
storms in the panhandle of Texas.
7/1/10
and adverse weather, including reports of heavy hail
130
improvement was related to market spill-over from the surge in wheat prices as a severe drought, record high
temperatures and extended wildfires in Russia caused a shortage of wheat. Now, it appears that a much lower corn
production estimate as a result of adverse weather conditions, a weaker U.S. dollar, news that China will be buying more
U.S. corn, higher crude oil prices, and heavy commodity contract buying by hedge funds have all contributed to the market
improvement. A weaker U.S. dollar encourages exports and higher crude oil prices affects corn prices because of the
high demand for corn for ethanol production. The estimate of corn use for ethanol production will account for about 37.1
percent of USDA’s October 2010 corn production estimate of 12.664 billion bushels. Hedge funds are buying near-by
commodity futures contracts as a safer investment to hedge against potential inflation.
Feeder and live cattle futures prices have been showing some recovery after recent weakness, but the livestock
industry, especially pork and poultry producers, continues to express serious concerns from signals of higher feed costs.
Corn
While the U.S. corn harvest is about 43 percent ahead of the five year average for this time of the year, USDA’s
October 8, 2010 supply/demand report decreased the corn production estimate by 496 million bushels from last month’s
estimate. (See Figure 2). The estimate of acres for harvest was increased by 258,000 acres, but the U.S. average yield
was lowered by 6.7 bu./ac. to 155.8 bu./ac.
Figure 2: U.S. Corn Production
Beginning stocks were increased by 392 million
and residual use was increased by 150 million
bushels but the estimate of exports was lowered
13,110
12,092
12,664
10,531
10/11
09/10
08/09
07/08
06/07
05/06
8,967
04/05
9,431
03/04
9,207
10,087
02/03
reduced sharply from last month’s estimate. Feed
9,915
9,503
9,759
01/02
disappearance, the estimate of ending stocks was
11,806
11,112
00/01
forecast production and higher projected domestic
13,038
99/00
stocks, the almost one-half billion drop in the
Million Bushels
98/99
estimate. But, despite the increase in beginning
14,000
13,000
12,000
11,000
10,000
9,000
8,000
7,000
97/98
bushels based on the September 2010 stock
Marketing Year
Source: USDA/FAS Production, Supply and Distribution Online (PS&D),
October 2010 Supply/Demand Report
100 million bushels as a result of tighter available supplies, reduced demand from higher prices, and increased
competition from Argentina. U.S. ending stocks are now projected lower at 902 million bushels, down 214 million bushels
from last month’s estimate.
The season-average farm price was projected at $4.60 to $5.40/bu., up 60 cents on both ends of the range.
Cotton
USDA’s October 8, 2010 supply/demand report remained virtually unchanged from last month. Production was
raised marginally, as increases for the Delta and the Southwest region were nearly offset by reductions from the Southeast
region. Domestic mill use and exports remained unchanged.
The estimate of U.S. ending stocks at 2.7 million bales also remained unchanged from last month’s estimate, but
down 25 million bales from last year. The average price received by producers was forecast at 67-79 cents per pound,
about four cents above last month. The midpoint of the range, is 10 cents above the final 2009/10 marketing-year average
price of 62.9 cents per pound.
While the value of the U.S. dollar has been showing significant weakness since mid-June’s highs, the index
showed a slight up-turn this past week and may have influenced the market weakness on Wednesday (10/27/10), but it
seems likely that markets will remain relatively strong.
Appreciation is expressed to Dr. Jackie Smith, Extension Economist for his contribution to and review of this article.