Urbana, Illinois
July 12, 2005The USDA's
July update of projections of supply, consumption, and stocks of
major commodities indicated smaller U.S. inventories of corn and
soybeans but more abundant supplies of U.S. wheat,
said a University of
Illinois Extension
marketing specialist.
"Some further tightening of world stocks of all three
commodities was also indicated," said Darrel Good.
For U.S. corn, the USDA increased the projection of domestic use
during the current marketing year by 75 million bushels in
response to the smaller-than-expected estimate of June 1
inventories released on June 30.
"The projection of feed and residual use was increased by 150
million bushels and the projection of use of corn for production
of ethanol was reduced by 75 million bushels," Good noted. "The
large increase in expected feed and residual use likely
represents an unusually large residual use, indicating that the
2004 crop was likely overestimated.
"Feed and residual use during the 2005-06 marketing year is
expected to be 300 million bushels--nearly 5 percent--less than
during the current year, reflecting a more typical level of
residual use."
Good added that the projection of exports during the current
marketing year was increased by 25 million bushels, resulting in
a 100 million bushel reduction in the projection of year-ending
stocks.
"In the case of U.S. soybeans, the projection of domestic crush
during the current year was increased by 15 million bushels, and
the projection of residual use was increased by 15 million
bushels in recognition that the 2004 crop was likely
overestimated," said Good. "Year-ending stocks are now projected
at 290 million bushels, well below the early year projection of
460 million bushels.
"For the 2005-06 marketing year, the USDA left the yield
projection unchanged at 39.9 bushels, resulting in a five
million bushel reduction in the production forecast due to
smaller acreage revealed last month. Stocks at the end of the
2005-06 marketing year are now projected at 210 million bushels,
80 million less than the first projection of two months ago."
However, for the 2005-06 marketing year, the estimate of
beginning wheat stocks was increased by 13 million bushels, in
line with the Grain Stocks report issued last month. The
projected size of the 2005 harvest, at 2.208
billion bushels, is 68 million larger than the June projection.
"The production forecast contains the first survey-based yield
estimate for spring wheat," said Good. "The estimate of
harvested acreage of all classes of wheat was reduced by 839,000
acres from June, but the forecast of average yield was increased
by two bushels per acre. At 43.8 bushels, the average yield
projection is 0.6 bushels above the 2004 average."
The projection of use of wheat during the current marketing year
was unchanged from the June projection, resulting in a
year-ending stocks projection of 700 million bushels, 81 million
larger than last month's projection.
For the 2005-06 corn marketing year, the USDA projects the
average farm price in a range of $1.70 to $2.10, 15 cents higher
than the June projection. At the close of trade on July 11, the
futures market reflected an average farm price for 2005-06 of
about $2.35.
"Part of the difference between the USDA forecast and the market
forecast is a difference of opinion about crop size," said Good.
"Based on current crop condition ratings, likely yield for the
2005 crop is below the USDA projection of 145 bushels. All else
equal, a yield of two bushels below the USDA projection would
reduce year-ending stocks by nearly 150 million bushels and
raise the price forecast by about five cents per bushel."
For soybeans, the USDA projects the 2005-06 marketing year
average farm price in a range of $5.10 to $6.10 per bushel, 15
cents above the June projection. At the close of trade on July
11, the futures market reflected an average marketing year farm
price of about $6.70.
"In the case of soybeans, current crop ratings suggest an
average yield very near that of the USDA projection," said Good.
"The market likely anticipates that crop ratings and yield
potential will continue to decline."
While part of the apparent price premium in both the corn and
soybean markets can be attributed to production concerns, part
may also reflect a difference of opinion about the fundamental
value of corn and soybeans.
"That is, for a given level of production, consumption, and
stocks, the market appears to value corn, and particularly
soybeans, more highly than does the USDA," said Good.
By Bob Sampson, PhD |