Urbana, Illinois
April 13, 2004
by Bob Sampson, Ph.D.
University of Illinois at
Urbana-Champaign
The corn and soybean markets will be each confronted by a major
issue over the next few months, said a University of Illinois
Extension marketing specialist.
"For the soybean market, the major task for the next four months
is making small supplies last until the new harvest," said
Darrel Good. "For corn, the major issue is the size of the 2004
crop.
"For both corn and soybeans, attractive pricing opportunities
for the 2004 crop have unfolded and may persist well into the
growing season."
Good's comments came as he reviewed the outlook for the corn and
soybean markets.
The USDA now projects 2003-04 marketing year soybean exports at
900 million bushels, nearly 14 percent less than shipments of a
year ago. The domestic crush is projected at 1.475 billion
bushels, nearly 9 percent less than
last year's crush. The reduction is being forced by the small
crop of 2003.
"Year-ending stocks are expected to be at a bare-bones level of
115 million bushels," said Good. "It now appears that soybean
exports are being reduced in line with USDA projections. As of
April 8--32 weeks into the
marketing year--the USDA's export inspections report indicated
that cumulative shipments were down 12 percent from the
shipments during the same period last year."
The Export Sales reports through April 1 showed a decline of
about 9 percent. At 70 million bushels, unshipped soybean export
sales as of April 1 were 38 million bushels (35 percent) smaller
than unshipped sales of a year ago. The decline in cumulative
shipments plus outstanding sales is in line with the USDA
projection for the year.
"While the South American harvest will be significantly smaller
than previously expected, it will be adequate to supply world
needs over the next several months, allowing U.S. exports to
decline," said Good.
Through the first half of the 2003-04 marketing year, the
cumulative domestic crush was three million bushels more than
the crush during the same period last year. To meet the USDA
projection for the year, crush during the last half of the year
needs to be 143 million bushels, or 18.5 percent, less than
during the last half of the 2002-03 marketing year.
"The nearly 24 million bushels per month reduction seems like an
impossible task. How will it happen?" Good asked.
"Three factors will combine to stretch available domestic
soybean supplies. First, use of U.S. soybean oil and meal will
have to decline, with most of that adjustment occurring in the
export market. For domestic uses, an interesting question is
whether there has been some accumulation of oil and meal
inventories by end users. The monthly Census Bureau report only
reports meal and oil inventories at mills. Changes in
inventories at other locations are not measured, resulting in
some 'noise' in the monthly estimates of disappearances as
non-mill stocks fluctuate up and down."
Good added that anecdotal evidence suggests that livestock
producers have increased stocks of soybean meal. To the degree
that is the case, meal use will not have to decline as rapidly
as the decline in crush.
The second factor involves imports of soybeans, soybean meal,
and soybean oil which can help alleviate the shortage in
domestic supplies this summer.
"While the USDA has projected a significant increase--percentage
wise--in imports of soybeans and products this year, the
absolute magnitudes are still small," said Good. "Larger imports
can occur if required by the market."
The third factor is the potential for early harvest of a portion
of the 2004 U.S. soybean crop.
"Harvest typically occurs first in the Delta states," said Good.
"Intended soybean acreage in those areas is nearly 500,000 acres
larger than acreage of a year ago. There are some indications
that actual acreage could exceed those intentions as producers
switch away from intended cotton acreage."
In some years, harvest occurs relatively early in the upper
Plains states. Intended acreage in North Dakota exceeds last
year's area by 550,000 acres. A relatively early harvest might
allow Sept. 1 stocks of old crop soybeans to be reduced below
the 115 million bushel level currently projected by the USDA.
"The extent to which prices must remain high, or go even higher,
to match supplies and use is now known, but it may be less than
suggested by the assumed need to reduce the domestic crush by 18
percent," said Good.
For the corn market, a small year-ending inventory and continued
large use into the 2004-05 marketing year are assumed.
"The question seems to be whether or not the 2004 U.S. crop will
be large enough to supply the increasing domestic and world
appetite for corn," said Good. "The size of the U.S. crop
required to meet expected needs will be influenced by the size
of grain crops in the rest of the world and by the magnitude of
corn exports from other areas.
"It appears that there will be less competition from China
during the upcoming marketing year, but more competition from
the Southern Hemisphere in the spring/summer of 2005. In
addition, a significant rebound in world wheat production would
provide more competition for U.S. corn in the world market."
For now, the market believes that the U.S. corn yield will have
to be at least at trend value of about 140 bushels to provide an
adequate crop in 2004.
"Planting progress, weather forecast, and early crop condition
ratings will be watched closely," Good said. "Price swings could
be quite large as the planting and growing season progresses." |
