Urbana, Illinois
May 27, 2008
Corn and soybean markets are not
reliant solely on energy or futures prices to support their
levels, said a University of
Illinois Extension marketing specialist.
"Some suggest that corn and soybean prices have not been
following fundamentals, but have traded on outside markets like
crude oil," said Darrel Good. "However, energy prices are more
fundamental to crop markets than ever before.
"Others have argued that crop prices have been inflated by
increased speculation in the futures market. There is no hard
evidence to support that argument. It is sufficient to say that
corn and soybean markets have plenty of supportive fundamentals
on their own."
Good's comments came as he reviewed corn and soybean prices
which continue to be supported by a broad range of fundamental
factors. These include strong domestic and export demand and a
fair amount of concern about the potential size of the 2008
crops in the United States.
The Census Bureau reported the domestic soybean crush in April
at 149.2 million bushels, nearly 3 percent larger than the crush
of April 2007.
"Importantly, the estimate of the March crush was revised higher
so that the cumulative crush during the first eight months of
the 2007-08 marketing year exceeds that of a year ago by 2.7
percent," he said. "Crush during the last four months of the
year needs to exceed year-ago levels by only 0.3 percent to
reach the USDA projection of 1.84 billion bushels for the year.
"It appears likely that crush will exceed that projection."
Prospects for domestic feed demand of soybean meal and corn are
bolstered by the sharp recovery in hog prices. Higher cash and
futures prices may slow the rate of liquidation of the herd. In
addition, as of May 1, the number of cattle on feedlots with a
capacity of at least 1,000 head was down only 1 percent from
that of a year earlier.
Placement of broiler eggs and chicks continues at a rapid pace,
with broiler production over the next 10 months expected to be
only 0.5 percent less than during the same time period last
year.
"Feed demand for corn during the summer months, however, may be
tempered by increased wheat feeding," Good said. "The average
bid for harvest-delivered wheat in southern Illinois, for
example, is currently only about 20 cents per bushel above the
current spot cash price of corn."
Domestic demand for corn to produce ethanol also remains strong
as current cash crush margins are solidly in the black.
"Higher ethanol prices and strengthening prices of distillers
grains have offset the higher prices of corn and natural gas,"
he said. "A continuation of relatively high crude oil and
gasoline prices would be supportive of continued strong demand
even with a lower blender tax credit and reduced mandates.
"The current wholesale price of unleaded gasoline along with a
45 cents per gallon blender's tax credit, for example, would
support ethanol prices 20 cents above current plant level
prices. Higher fuel prices might also give a boost to soybean
oil demand for biodiesel production."
That use, he added, has declined sharply since the peak in
August 2007, but the use of other fats and oils for biodiesel
production has increased sharply.
Soybean export demand remains brisk. Cumulative shipments
through May 22 (38 weeks into the marketing year) were only 1
percent less than the total of a year ago, while the USDA has
projected a 2.5 percent decline for the year.
Unshipped sales of as May 15 totaled 136 million bushels,
compared to only 81 million on the same date last year.
"It is also significant that Census Bureau export estimates
through March exceeded the USDA estimates by 30 million
bushels," he noted. "Last year, Census Bureau estimates through
March were 30 million less than USDA estimates.
"Through March, then, the Census Bureau showed soybean exports
exceeding those of a year ago by 39 million bushels. Continued
strong demand from China, export interruptions in Argentina, and
prospects of only a modest increase in soybean acreage in South
America keep export prospects strong."
The pace of corn export shipments has slowed since mid-April.
Cumulative inspections through May 22 exceeded year -ago levels
by 17 percent, in line with the 17.6 percent increase for the
year projected by USDA. Unshipped sales as of May 15 totaled 503
million bushels, compared to only 381 million bushels a year
earlier.
In addition, Census Bureau export estimates through March
exceeded inspections by 49 million bushels, compared to a margin
of 25 million a year ago.
"While sales remain brisk, the pace of exports needs to increase
to reach the USDA projection for the year of 2.5 billion
bushels," he said.
On the supply side, Good said, the focus will continue to be on
the rate of planting and development of the U.S. crops. More
than half the corn crop in Iowa, Minnesota, and Missouri will be
planted after May 10 and more than half of the soybean crop in
most Corn Belt states will be planted after May 20.
"Late planting, slow emergence, and slow growth all raise
concerns about yield potential," he said. "In addition, the late
maturity of the soft red winter wheat crop in Illinois, Indiana,
Missouri, and Ohio raises questions about the timeliness of
soybean planting following the wheat harvest.
"A late wheat harvest might reduce acreage and/or yield of
double-cropped soybeans in those areas."
By Bob Sampson, University of
Illinois |
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