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Texas Agriculture Archive

February 7, 2003

Commodity price outlook
better, economists say

Two noted economists said commodity prices could go up slightly in 2003. Still, the outlook is uncertain and the economists advised producers to sell stored commodities now to reduce storage costs and the ever-present risk of under-performing markets.

Speaking at the American Farm Bureau Federation's convention, Bill Tierney, state extension crop marketing specialist with Kansas State University, said December corn and soybean stocks are larger than the Agriculture Department predicted last fall. But more corn is being used for industrial purposes and production is down because of weather problems.

As a result, carryover stocks are down and are expected to be relatively low at the end of this year. That means prices could go up.

Producers have seen stocks tighten, but have not seen much response from commodities markets in the form of higher prices. But buyers who have been holding off making any big purchases will have to buy at some point in order to meet demand. And, if there is a weather disaster this year in any of the major grain-producing countries, supplies could get even tighter.

There could be a decline in the amount of corn fed to livestock, Tierney said. USDA may have overestimated the amount of corn that will be fed this year, which could be pushing current corn prices lower. Tierney said he expected demand for feed corn to increase by about 75 million to 100 million bushels.

Another part of the equation that is difficult to predict is the price margins on exports, which Tierney said represent about 18 percent of the corn market. China will continue to import more corn, Tierney predicted. Overall, there is more "upside to corn price potential than downside," he said.

Soybean stocks also are much larger than the industry expected, Tierney said. But, export commitments are the fastest they have ever been at this time of year. Soy oil commitments are a little less, but are expected to inch back up a little.

"Exports are very important to the soybeans outlook, and they are performing extremely well," Tierney said. "In addition, the soybean crush rate is amazingly stable from month to month."

While the markets may be waiting to see what happens with the South American crop, taking all the bullish and bearish factors into consideration, Tierney predicted prices are more likely to go up this year than down.

O.A. Cleveland, Extension marketing and price specialist at Mississippi State University, predicted that cotton prices also will go up. The stocks-to-use ratio will be the lowest since 1994-95, he predicted, although prices will not increase to what they were in the mid-1990s.

Cleveland said several factors would likely push cotton prices up, including the weakening of the U.S. dollar, production and quality problems in several cotton-producing countries and the fact that China should continue to be a large importer. However, lower quality cotton will not see as much of a price increase, simply "because there's too much of it out there," he said.

Downward pressure could come from the continued sluggishness of the U.S. and world economies, potentially larger crops in China and the United States and some shift in demand from cotton to polyester if cotton prices rise. Still, Cleveland believed there are more bullish factors than bearish.

"I don't want to see cotton prices come back too fast," Cleveland said, "because that will cause production to increase." He estimated cotton prices would approach 70 cents per pound.