Urbana, Illinois
September 7, 2004
At present, prospects for an
abundant U.S. soybean harvest are still in place, but prices may
continue to be a bit volatile as the growing season winds down
and yield reports filter into the market, said a
University of Illinois
Extension marketing specialist.
"Once the U.S. growing season is completed, the market will turn
more attention to Chinese demand and South American crop
prospects," said Darrel Good. "Forecasts of Chinese imports are
fairly aggressive and most analysts continue to report prospects
for a significant--7 percent--increase in soybean area in
Brazil.
"Some concern about the South American crop may be needed to
keep prices from moving lower this winter."
Good's comments came as he reviewed the soybean market. Last
month, the USDA forecast the 2004 U.S. soybean crop at 2.877
billion bushels, 459 million larger than the 2003 crop and only
12 million less than the record crop of 2001.
"That forecast was based on a survey of farmers and on some
field observations of crops in the seven largest producing
states in late July/early August," said Good. "The forecast
assumed normal weather conditions for the remainder of the
growing season."
The crop forecasting process has been repeated for the report to
be released on Sept. 10 and will be conducted again for the
October and November forecasts. Monthly forecasts, relative to
the final estimate made in January following harvest, generally
become more accurate in later months of the forecasting cycle as
more information is available.
"Anticipating the September forecast this year is made difficult
by the diversity in reported crop conditions and by the wide
range in crop maturity," said Good. "The USDA's report of crop
conditions for the week ended Aug. 29 showed the poorest crops
to be in Louisiana, Michigan, Minnesota, North Dakota, Ohio, and
Wisconsin.
"Relative to the five-year average, crop maturity was latest in
Kansas, Michigan, Minnesota, the Dakotas, and Wisconsin. In
general, however, August weather conditions were favorable for
much of the crop in the Midwest and harvest of early maturing
varieties is underway."
For much of the past month, the soybean market focused on the
lateness of the crop in northern growing areas and the private
forecasts of an early freeze that could damage much of that
crop, Good noted.
November 2004 soybean futures moved 30 cents higher (closing at
about $5.85) following the smaller-than-expected August
production forecast and then traded to a high of $6.52 on Sept.
1. The market focused on crop
concerns in northern growing areas and appeared to ignore the
potential impact of favorable weather on crops in the middle of
the country.
"Now, forecasts of imminent frost have disappeared and the
National Weather Service forecast for the period Sept. 12
through 16 calls for above-normal temperatures in most of the
northern growing areas," said Good.
While harvest is well underway in some southern areas and will
be progressing rapidly in the lower Midwest, considerable
uncertainty about crop size will persist beyond the USDA's
September forecast to be released this week. Current crop
condition ratings, however, suggest that there is potential for
the U.S. average yield to exceed the USDA's August forecast of
39.1 bushels per acre.
"As of Aug. 29, 64 percent of the U.S. crop was rated in good or
excellent condition, well above the 45 percent of a year ago,"
said Good. "Based on the relationship between crop condition
ratings at the end of the season and the average yield over the
past 18 years, current crop condition ratings suggest a 2004
average yield of 41.2 bushels per acre.
"It is likely that crop condition ratings will continue to
decline. The percentage of the crop rated good or excellent,
however, would need to decline to 53 percent for historical
relationships to point to a yield of 39.1 bushels. While the
past relationship between reported crop conditions at the end of
the season and yield is fairly strong, the 'fit' was weak in
some years. Crop condition ratings do not provide a complete
indication of yield prospects, but have been a reasonable
guide."
An average yield of 41.2 bushels per acre, without a change in
the estimate of harvested acreage, would result in a 2004 U.S.
soybean crop of 3.035 billion bushels. If the percentage of the
crop rated good or excellent declines another five points, a
yield of 40.2 bushels and a crop of 2.96 billion bushels would
be projected by past relationships.
"A crop of that size," Good said, "would likely be enough to
push prices back to the early August lows, and probably even
lower."
With the change in frost prospects, November 2004 soybean
futures traded back to the $5.80 level early on September 7.
By Bob Sampson, PhD |