Urbana, Illinois
October 13, 2008
With the supply side of the corn
and soybean price equation becoming more settled, price
direction will now come primarily from the demand side, where
there are some positive developments, said a University of
Illinois Extension marketing specialist.
"Export sales for the week ended October 2 were relatively
large and well above the weekly pace needed to reach the USDA
projections for the year," said Darrel Good. "Feed prices are
now low enough that livestock feeding margins are generally
profitable, ethanol production margins exceed operating costs,
and low prices will not encourage a large supply response in the
southern hemisphere.
"It appears that value now exceeds the price of corn and
soybeans. For those prices to stabilize and/or rebound,
confidence in the financial markets will have to be
demonstrated."
Good's comments came as he reviewed corn and soybean prices
which have been pummeled by negative fundamental news since
early September. In addition to larger production forecasts,
corn and soybean prices have continued to be pressured by
declining stock prices and energy prices that threaten demand
prospects.
"In late June, we were asking if the highs were near, now the
question is whether the lows are near," he observed.
The latest round of negative information was provided by the
USDA's October Crop Production report. For soybeans, that report
contained a 2008 production forecast of 2.983 billion bushels,
49 million larger than the September forecast and 63 million
larger than the average pre-report guess.
"Despite a three bushel increase in the forecast of the Illinois
average yield, the forecast of the U.S. average yield, at 39.5
bushels, was 0.5 bushels below the September forecast," he said.
"That forecast is 2.2 bushels below the 2007 average and would
be the lowest average yield in five years.
"The larger crop forecast was the result of a larger acreage
estimate. At 76.983 million, planted acreage is 2.2 million
above the previous estimate. The harvested acreage forecast of
75.479 is 2.138 million above the September forecast."
In the USDA's revised supply and demand projections, the larger
crop forecast was partially offset with a 36 million bushel
increase in projected use during the current marketing year.
Year ending stocks are now projected at 220 million bushels.
Based on current projections, an increase in U.S. soybean
acreage will not be required in 2009. If the 2009 yield is near
42.5 bushels, harvested acreage at this year's level would
result in a crop of 3.208 billion bushels.
"If year ending stocks can be reduced to about 125 million
bushels, then 3.31 billion bushels would be available for
consumption during the 2009-10 marketing year," said Good. "That
would be 335 million above projected use for the current year
and 237 million above the record consumption of 2006-07. If the
2009 South American crop lives up to current expectations, world
supplies would likely be sufficient with a two to three million
acre reduction in U.S. acreage in 2009."
For corn, the 2008 U.S. crop is now projected at 12.2 billion
bushels, 128 million bushels larger than the September forecast.
Planted acreage of corn is now estimated at 86.909, 68,000 less
than the previous estimate, while area harvested for grain is
estimated at 79,197 million acres, 93,000 below the September
forecast.
The U.S. average yield is forecast at 154 bushels, 1.7 bushels
above the September forecast, reflecting higher yield prospects
in the major producing states of Illinois, Iowa, Kansas,
Minnesota, and Nebraska. Yield prospects declined in Indiana,
Ohio, and South Dakota.
On the consumption side of the equation, the USDA increased
projected use during the current marketing year by 40 million
bushels. The projection of feed use was increased by 150 million
bushels and the forecast of processing uses of corn was reduced
by 110 million.
"Most of that reduction, 100 million bushels, was in the ethanol
category," he said. "Year-ending stocks are projected at 1.154
billion bushels, 136 million above the September forecast. The
projected level of year ending stocks is relatively small and
would force a reduction in use during the 2009-10 marketing year
unless production is increased in 2009."
With a 2009 yield near trend value of about 153 bushels, it
appears that corn acreage needs to expand by 3 to 4 million
acres in 2009.
"Most of that can come from a reduction in soybean acreage," he
said. "In addition, reduced acreage of soft red winter wheat may
free some acreage for corn planting in 2009.
"The major implication, then, of the October corn and soybean
production forecasts is that there may not need to be much of an
acreage battle in 2009. However, corn prices will have to be
high enough in relation to soybean prices to motivate a modest
acreage shift."
By Bob Sampson, University of
Illinois |
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