Urbana, Illinois
April 5, 2004
by Bob Sampson, Ph.D.
University of Illinois at
Urbana-Champaign
A number of fundamental factors have propelled corn, wheat and
soybean prices to high levels, said a University of Illinois
Extension marketing specialist.
"These factors include the small world wheat crop of 2003-04,
the small 2004 U.S. soybean crop, large soybean imports by
China, a poor end to the 2004 South American growing season, and
the expanding domestic consumption of corn," said Good. "The net
result is declining world inventories of grain.
"For the next several months, prospects for the size of the U.S.
corn and soybean crops and world wheat production will be
important price factors."
Last week's USDA Prospective Plantings report provided the first
ingredients for anticipating U.S. crop production in 2004. The
report indicated that producers intend to reduce acreage of
wheat and feed grains and increase acreage of soybeans, rice and
cotton. Reductions are also intended for canola and sunflowers.
"The major surprises in these intentions include a large
increase in soybean acreage, a very small increase in corn
acreage, and a decline in total planted acres of reported
crops," said Good. "Intentions for all non-hay crops in this
report were 832,000 acres below last year's plantings."
At 79.004 million acres, corn-planting intentions are only
268,000 acres more than planted in 2003, well below the average
expectation of an increase of 1.5 million acres. Most of the
planned increase is in the western Corn Belt, although a modest
decline is intended in Nebraska and a modest increase is
expected in Ohio. This planned increase in corn is more than
offset by the 820,000-acre reduction in sorghum planting
intentions. In addition, reductions in combined intentions for
barley and oats (for harvest) totaled 773,000 acres.
Soybean planting intentions were reported at a record 75.411
million acres, 2.007 million more than planted in 2003 and about
one million more than the average pre-report guess. Half of the
planned increase is in western
growing areas, with the largest increase of 550,000 acres
planned in North Dakota. Acreage in the eastern Corn Belt states
is expected to be near that of last year, with the remaining
half of the increase coming in southern and eastern areas of the
United States.
The Prospective Plantings report also revealed producer
intentions to reduce durum wheat seedings by 158,000 acres and
to reduce seedings of other spring wheat by 507,000 acres.
"Combined with the 1.573-million acre reduction in winter wheat
seedings, U.S. wheat area looks to be down by 2.238 million
acres," said Good.
Good noted that it is generally believed that the planned
increase in corn acreage is not sufficient to accommodate the
expected increases in consumption of U.S. corn in the 2004-05
marketing year.
"That increase is expected to be led by domestic use of corn for
ethanol and by exports, as China reduces the level of exports,"
said Good. "As a result, corn prices have moved sharply higher
in a late effort to entice producers to plant more corn and to
slow the rate of corn consumption.
"The market will have to wait for the USDA's June 30 Acreage
report to see if producers responded to this effort. In recent
history, June acreage figures were more than marginally above
March intentions only in 2000. Since the change in farm
programs in 1996, the final acreage estimate was also above
March intentions only in 2000."
Good said that corn yield prospects now become critically
important for the corn market. It is not often that a new record
corn yield is required just to keep pace with expected
consumption.
"Prices could move sharply higher if a growing season problem
develops," he said. "Even with a trend yield in 2004, the
average 2004-05 marketing year price may well exceed that of
2003-04."
With a significant rebound in the U.S. average yield in 2004,
the planned increase in soybean acreage is more than sufficient
for a rebuilding of U.S. supplies. However, the market is not in
a hurry to assume a high yield in 2004, given the experience of
2003.
"As a result, a bizarre sort of bidding war with corn appears to
be taking place to ensure that producers maintain plans to
increase soybean acreage," said Good.
In addition to U.S. production prospects, the soybean market has
several other factors to consider over the next few months,
including the size of the South American crop and the pace of
domestic soybean meal consumption.
"The potential for domestic soybean supplies to be effectively
depleted before the new harvest still looms," said Good. "Will
the combination of reduced exports, South American imports,
inventory depletion, and early harvest be sufficient to make
supplies last, or will higher prices be required?"
For wheat, the potential size of wheat crops outside the United
States will be as important as prospects for the U.S. crop.
"In particular, it will be important whether or not production
rebounds from the very low levels of the past year in Europe,
Russia, and the Ukraine, as it has in Australia," Good said. |
