Swine flu has already had an impact on U.S. crop markets, says Darrel Good, a University of Illinois Extension marketing specialist.
"In the first trading session following the announcement of incidences of swine flu in Mexico and the U.S., corn, soybean and wheat futures declined sharply," says Good. "Market participants reportedly are concerned that the threat of swine flu will reduce pork demand, stimulating further liquidation of hog numbers and resulting in reduced feed demand."
Such negative reaction, Good notes, is typical with episodes that create so much uncertainty.
"Russia reportedly announced restriction on pork imports from Mexico and selected origins in the U.S.," he says. "Restrictions by other importers would not be surprising.
"Health experts indicate that swine flu is not transmitted to humans through properly prepared pork. The hope is that the initial knee-jerk reaction will be followed by more thoughtful responses. The extent of reported cases of swine flu will be important in determining the depth of demand worries."
Good says a number of other fundamental factors continue to influence crop prices. For soybeans, the Census Bureau reported that the domestic crush during March totaled 144.7 million bushels, 7.2% smaller than the crush of a year earlier.
During the first seven months of the 2008-2009 marketing year, the domestic crush has totaled 987.1 million bushels, 9.6% less than crushed during the same period last year. For the year, the USDA has projected the domestic crush at 1.635 billion bushels, 9.2% less than the crush in the previous marketing year.
"Soybean exports and export sales remain robust as Chinese buying remains strong in the face of a smaller South American crop, particularly in Argentina," says Good. "USDA's weekly export inspection report showed cumulative marketing year exports through April 23 at 1 billion bushels.
"During the first six months of the marketing year, Census Bureau estimates of soybean exports exceeded USDA estimates by 42 million bushels. If that margin persists, exports during the last 18.5 weeks of the marketing year need to total only 170 million bushels to reach the USDA's projection of 1.21 billion."
As of April 16, he adds, unshipped export sales were reported at 148 million bushels. It appears that exports will reach or perhaps exceed the USDA projection.
For corn, cumulative export inspections through April 23 totaled 1.08 billion bushels. During the first half of the marketing year, Census Bureau corn export estimates exceeded USDA inspection estimates by 35 million bushels.
"If that margin persists, exports during the final 18.5 weeks of the year need to total 585 million bushels — 31.5 million/week — to reach the USDA projection of 1.7 billion bushels," says Good. "As of April 16, unshipped export sales were reported at 388 million bushels.
"New sales need to average about one-half million per week. That increase in the weekly rate of shipments and sales over the past month is encouraging and suggests that the USDA projection is reachable."
The more troubling development for corn comes from California where actions that could limit the growth of ethanol consumption in that state are under consideration.
"While decisions are not final, the initial indication is that California's calculation of the indirect land use implication of corn-based ethanol increases the 'carbon footprint' of ethanol and makes it less attractive in reducing carbon emissions in the state," he says.
"Any restriction on ethanol use would not occur in the near term, but raises concern about longer-term ethanol demand in California. Lower crude oil and gasoline prices currently being experienced also provide a tone to ethanol demand."
On the supply side, corn planting remains slower than normal and weather forecasts suggest rain delays will continue into early May.
"The market has been slow to show concerns about the slow pace of planting," says Good. "The lack of concern stems in part from the apparent lack of production loss from late planting and re-planting in many areas last year. A year ago, however, the corn crop benefitted from nearly ideal weather conditions in July and a favorable growing season that continued well into September."
The large number of factors influencing the corn and soybean markets suggests that prices will likely continue to be very volatile, but extremely difficult to anticipate.
"For the 2009 crop, pricing decisions can still be anchored to the spring price guarantees for crop revenue insurance," he said. "Spikes well above those guarantees provide an opportunity for some small sales."