Urbana, Illinois
November 15, 2004
Increases in the USDA forecast of 2004 U.S. corn and soybean
crops will likely lead to even larger increases in year-ending
stocks,
said a University of
Illinois Extension
marketing specialist.
"The USDA's November forecast
of the size of these crops was larger than the October
forecasts," said Darrel Good, who analyzed the implications of
the upward revisions.
Now, the U.S. corn crop is forecast at 11.741 billion bushels,
128 million larger than the October forecast. The U.S. average
yield is forecast at 160.7 bushels per acre, 1.8 bushels above
the October forecast. Yield forecast were unchanged to higher
for all the northern states where harvest is later than normal.
On the consumption side, the USDA increased the forecast of
domestic feed and residual use of corn by 25 million bushels and
reduced the forecast of exports by an equal amount. Year-ending
stocks of corn are projected at 1.819 billion bushels, the
largest in four years.
"The projection of feed and residual use of corn, at 6.075
billion bushels, is 5 percent larger than use during the 2003-04
marketing year," said Good. "The first look at the rate of use
in that category will come with the Dec. 1 Grain Stocks report
to be released on Jan. 12. The reduction in the projection
of U.S. corn exports reflects the relatively slow start to this
year's export program.
"The projected size of this year's Chinese corn crop was
increased by about 155 million bushels, but the USDA did not
increase the projection of Chinese exports. Those exports are
expected to total about 155 million bushels, down nearly 50
percent from exports of a year ago."
The U.S. soybean crop is now forecast at 3.15 billion bushels,
43 million bushels larger than the October forecast. The U.S.
average yield is forecast at 42.6 bushels per acre, six-tenths
of a bushel above the October forecast.
"The yield forecasts were unchanged to higher for all major
soybean producing states except Minnesota and North Dakota,
where the projected dropped by two bushels per acre. On the
consumption side, the USDA lowered the projection of 2004-05
marketing year exports by 15 million bushels. Year-ending stocks
are projected at 460 million bushels, the largest in 18 years,"
said Good.
Good noted that the USDA now projects the 2004-05 marketing year
average price of corn in a range of $1.70 to $2.10 per bushel.
The midpoint of that range ($1.90) is consistent with the
average price during the large crop years of 1998-99 thr0ugh
2001-02.
"The average for those four years was $1.90, in a range of $1.85
to $1.97," said Good. "The relationship between year-ending
stocks and the marketing year average price over the past six
years points to an average price this
year of $1.99, based on the USDA's forecast of use and ending
stocks.
"The current market is consistent with this forecast. Based on
the average price received by producers in September and October
and closing futures prices on Nov. 12, the market currently
reflects a marketing year average price of $2 per bushel. The
futures market reflects monthly average prices--based on a
three-year average basis--ranging from $1.84 this month to $2.18
in August 2005. All in all, there is a lot of consistency among
the forecasts of the season's average price for corn."
However, Good added, no such consistency exists for soybeans.
The USDA forecasts the 2004-05 marketing year average price in a
range of $4.55 to $5.35. The midpoint of that range ($4.90) is
well above the average price during the large crop years of
1998-99 through 2001-02. The average for those four years was
$4.62, in a range of $4.38 to $4.93. Year-ending stocks as a
percentage of use during those four years ranged from 7.1 to
13.4 percent, compared to the 16.4 percent projected for this
year.
"The relationship between year-ending stocks and the marketing
year average price of soybeans over the past six years points to
an average price this year in the low $4 range," said Good. "The
average price will not be that
low because nearly one-third of the crop has already been priced
at an average of $5.25. Based on that average and the closing
futures prices on Nov. 12, the current market reflects a
marketing year average price of $5.15 per bushel."
What is the reason for the big difference between the current
market price of soybeans and the much lower calculated "value"
of soybeans based on the forecasts of large surpluses?
"Soybean oil," answered Good. "The average price of soybean meal
during the 1998-99 through 2001-02 marketing years was $163 per
ton. The current price--central Illinois, 48 percent--is $150
per ton and the USDA projects the marketing year average price
in a range of $145 to $175 per ton.
"In contrast, the average price of soybean oil in those four
years of large crops was 16 1/2 cents per pound, the current
price is about 23 cents, and the USDA projects the marketing
year average price in a range of 21 1/2
cents to 24 1/2 cents per pound."
The relatively high price of soybean oil does not reflect a
short supply situation, Good added.
"World oilseed production is expected to be 15 percent larger
than last year's output," he said. "Soybean oil prices, then,
reflect prospects for a very strong demand for vegetable oils
and only a modest increase in world
stocks of oil.
"However, world stocks of oilseeds are expected to increase
sharply, implying an abundance of oil. The rate of consumption
of U.S. soybean oil will determine if soybean prices can
maintain the recent strength."
By Bob Sampson, PhD |
