Urbana, Illinois
February 25, 2008
The corn and soybean markets need
to offer the right incentives for corn and soybean acreage in
2008, said a University of
Illinois Extension marketing specialist.
"That means prices should generally favor corn over soybeans for
the U.S. spring planting, and then soybean prices should be high
enough from about August forward to encourage more soybean acres
in South America," said Darrel Good. "The market appears to be
giving the correct signals for now, but must avoid the mistake
of 2006 when prices encouraged too large a shift from corn to
soybeans."
Good's comments came as he reviewed acreage and yield needs in
2008. On Feb. 22, members of the USDA's Wheat, Feed Grains,
Rice, and Oilseeds Interagency Commodity Estimates Committees
released a grains and oilseeds outlook for 2008. Among other
things, the outlook contains forecasts for large year-over-year
increases in U.S. cropland acreage in 2008 and a sizeable
year-over-year increase in the U.S. average corn yield.
"Even with the expectation of a large supply response in 2008,
forecasts show prospects of declining U.S. corn inventories and
a continuation of very small U.S. soybean inventories by the end
of the 2008-09 marketing year," said Good. "Domestic wheat
inventories are expected to nearly double from the end of the
current marketing year--June 1, 2008--to the end of the 2008-09
marketing year.
"The average price received by producers for each of these crops
in the 2008-09 marketing year is expected to be significantly
higher than the average projected for the current year, but well
below the price implied by current 2008-09 futures prices."
Combined planted acreage of corn, soybeans, and wheat in 2008 is
projected at 225 million acres, 7.4 million more than planted in
2007. Acreage of the eight major crops (including sorghum, oats,
barley, rice, and upland cotton) is expected to increase by 6.8
million acres.
"Increased acreage of corn, soybeans, and wheat is expected to
come from a combination of reduced cotton acreage--1.1 million,
increased double-cropping of soybeans--perhaps two million acres
by our calculations, and land not renewed for the Conservation
Reserve Program--a maximum of 2.5 million," said Good. "That
total of 5.6 million acres still leaves 1.8 million acres of the
projected increase not accounted for. Perhaps that increase will
come from forage and grassland as cow numbers are reduced and
from other grains and oilseeds."
Good noted that the projections for the 2008-09 marketing year
supply and demand balance for corn are especially interesting.
"Planted acreage is expected to decline by 3.6 million acres
while acreage harvested for grain is expected to decline by 3.8
million," he said. "The U.S. average yield is projected at a
four-year high of 154.9 bushels, 3.8 bushels above the 2007
average.
"On the consumption side, the USDA sees corn use for ethanol
production increasing by 900 million bushels--28 percent, feed
use declining by 550 million--9 percent, and exports declining
by 300 million bushels--12 percent. Year-ending stocks are
projected at a meager 1.243 billion bushels, or 9.5 percent of
projected use."
If the 2008 U.S. corn yield is closer to the long-term trend of
152.5 bushels, with all other forecasts unchanged, year-ending
stocks would decline to 1.045 billion bushels, or 8 percent of
use. If combined feed use and exports decline by less than 850
million bushels, year-ending stocks would be even tighter.
"The conclusion is that planted acreage of corn in 2008 needs to
be larger than 90 million acres in order to reduce the risk of a
shortage in supply and much higher prices," said Good.
For soybeans, the USDA projects U.S. planted acreage at 71
million, 7.4 million more than planted in 2007. Harvested
acreage, at 70.1 million, would be 7.3 million more than
harvested in 2007. A U.S. average yield of 42.1 bushels and a
crop of 2.95 billion bushels are projected for 2008.
Domestic use of soybeans is expected to increase by 33 million
bushels and exports are expected to decline by 95 million
bushels, leaving year-ending stocks of 169 million bushels, or
5.7 percent of projected use. That compares to projections for
the current year of 160 million and 5.3 percent, respectively.
"Is such a large increase in U.S. soybean acreage really needed
in 2008?" Good asked. "The alternative is for South America to
increase acreage more aggressively and to meet a larger
percentage of the export market demand for soybeans in 2008-09
and beyond. That scenario would allow the U.S. to plant more
corn than currently forecast."
As of Feb. 22, the level of prices for the 2008 crops appears to
favor corn production over soybean production in the Midwest.
Good offered Illinois as an example.
"Using the long-term--1960 through 1970--trend corn and soybean
yields for the nine crop reporting districts to forecast
expected yield for 2008 along with current harvest bids for each
crop, the expected gross revenue for corn exceeds that of
soybeans from about $135 per acre in the West to $222 per acre
in the West-Southwest," he said.
"Crop budgets suggest that expected yields and current prices
favor corn production over soybean production in most of the
state."
By Bob Sampson, University of
Illinois |
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