Urbana, Illinois
October 18, 2004As the
corn and soybean markets absorb the recent large USDA production
forecasts, attention will gradually shift to the rate of
consumption,
said a University of
Illinois Extension
marketing specialist.
"Prices have not come under as much pressure as anticipated when
the production forecast were released on Oct. 12," said Darrel
Good. "December corn futures traded to a new contract low, but
quickly rebounded and by the
close on Oct. 15 were higher than the day before the report was
released.
"The average central Illinois overnight cash bid traded to a low
of $1.735 on Oct. 4 and again on the day of the report, but was
four cents higher on Oct. 15. The lowest cash price to date is
well above the lows seen in the low price years of 1997-98
through 2000-01. Lows in those years ranged from $1.45 to
$1.665."
November soybean futures traded to a low of $5.06 on Oct. 12,
but that is well above the contract low of $4.83 established in
early 2002.
"That contract settled at $5.14 on Oct. 15," said Good. "The
average central Illinois overnight cash bid reached a low of
$4.80 on Oct. 12, but was at $4.865 on Oct. 15. Again, that low
is well above the lows reached from 1998-99 through 2001-02.
Those lows ranged from $3.875 to $4.295."
Good said that given the size of the USDA production forecasts
and the size of the projected year-end inventories, corn and
soybean prices have held up rather well.
"One reason may be that the market anticipates stronger demand
than in previous years," he said. "The demand strength could be
in the form of larger consumption at the projected price levels
or a willingness of end-users to pay higher prices for
consumption at the projected levels."
For corn, the USDA has projected increased consumption in all
three categories of use--feed, industrial, and export.
"Few would question the potential for a significant increase in
the amount of corn used for ethanol production," he said.
"Livestock numbers and prices will provide some hint of the
potential for feed use, but the first indication of the rate of
use in that category will come with the USDA's December Grain
Stocks report to be released in early January.
"For the most part, the market will focus on the rate of corn
exports and export sales. Relative to the pace of a year ago,
the pace of export inspections and new sales has started
slowly."
Inspections during the first six weeks of the marketing year
were about 8 percent smaller than during the same period last
year. Cumulative shipments reported in the weekly Export Sales
report, however, have exceeded the inspection figures. Unshipped
sales as of Oct. 7 were 14 percent smaller than on the same date
a year ago. New sales should be large over the next few weeks in
response to the low prices now being experienced. Shipments will
need to average about 41 million bushels per week through August
2005 for exports to reach the USDA projection of 2.075 billion
for the year.
The USDA also projects an increase in domestic and export use of
soybeans during the 2004-05 marketing year following the
supply-induced decline in 2003-04.
"There is general consensus that domestic use of meal and oil
will recover to a trend level during the year," said Good. "The
focus will be on soybean and soybean product exports. Like corn,
soybean shipments and sales started a little slower than the
torrid pace of a year ago, but inspections were large for the
week ended Oct. 14."
Cumulative shipments during the first six weeks of the marketing
year were 15 million bushels (18 percent) larger than during the
same period last year. Unshipped sales as of Oct. 7 were 60
million bushels (16 percent) less than sales on the same date
last year.
"The good news is that shipments and sales to China are larger
than those of a year ago," said Good. "The USDA has projected a
10 percent increase in soybean consumption in China this year
and a 33 percent (205 million bushel) increase in imports from
all sources. The European Union and Mexico are buying U.S.
soybeans at a slower pace than that of last year."
In addition to monitoring the pace of U.S. soybean exports and
export sales, the market's expectation of U.S. exports will be
influenced by the potential size and progress of the South
American crop, particularly the Brazilian crop. The USDA
projects a 7.2 percent increase in soybean area in Brazil, but
that is less than the 9.6 percent increase projected in
September.
"Still, that increase in conjunction with normal yields would
result in a 22.6 percent increase in Brazilian production in
2005," Good noted. "A more modest 11.4 percent increase is
projected for Argentina. South American crops at the projected
level would provide increased competition for U.S. soybeans and
would lead to a significant increase in stocks in South
America."
At current price levels, the soybean market does not appear to
be fully reflecting South American production at the level
forecast by the USDA. Reports of increased costs and more
limited production financing in Brazil suggests that soybean
area may be a bit less than forecast.
"With soybean rust having been a problem in Brazil the past two
years, yield uncertainty may persist well into the growing
season this year," said Good. "The fate of that crop will
determine if harvest price lows will hold or if new lows will be
established later in the year. There appears to be more price
uncertainty for soybeans than for corn."
By Bob Sampson, PhD |