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"Prices have not come under as much
pressure as anticipated when the production forecasts were released
on Oct. 12," said Darrel Good. "December corn futures traded to a
new contract low but quickly rebounded and by the close on Oct. 15
were higher than the day before the report was released.
"The average central Illinois overnight
cash bid traded to a low of $1.735 on Oct. 4 and again on the day of
the report but was 4 cents higher on Oct. 15. The lowest cash price
to date is well above the lows seen in the low price years of
1997-98 through 2000-01. Lows in those years ranged from $1.45 to
$1.665."
November soybean futures traded to a
low of $5.06 on Oct. 12, but that is well above the contract low of
$4.83 established in early 2002.
"That contract settled at $5.14 on
Oct. 15," said Good. "The average central Illinois overnight cash
bid reached a low of $4.80 on Oct. 12 but was at $4.865 on Oct. 15.
Again, that low is well above the lows reached from 1998-99 through
2001-02. Those lows ranged from $3.875 to $4.295."
Good said that, given the size of
the USDA production forecasts and the size of the projected year-end
inventories, corn and soybean prices have held up rather well.
"One reason may be that the market
anticipates stronger demand than in previous years," he said. "The
demand strength could be in the form of larger consumption at the
projected price levels or a willingness of end-users to pay higher
prices for consumption at the projected levels."
For corn, the USDA has projected
increased consumption in all three categories of use -- feed,
industrial and export.
"Few would question the potential
for a significant increase in the amount of corn used for ethanol
production," he said. "Livestock numbers and prices will provide
some hint of the potential for feed use, but the first indication of
the rate of use in that category will come with the USDA's December
grain stocks report, to be released in early January.
"For the most part, the market will
focus on the rate of corn exports and export sales. Relative to the
pace of a year ago, the pace of export inspections and new sales has
started slowly."
Inspections during the first six
weeks of the marketing year were about 8 percent smaller than during
the same period last year. Cumulative shipments reported in the
weekly export sales report, however, have exceeded the inspection
figures. Unshipped sales as of Oct. 7 were 14 percent smaller than
on the same date a year ago. New sales should be large over the next
few weeks in response to the low prices now being experienced.
Shipments will need to average about 41 million bushels per week
through August 2005 for exports to reach the USDA projection of
2.075 billion for the year.
[to top of second column in
this article]
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The USDA also projects an increase
in domestic and export use of soybeans during the 2004-05 marketing
year, following the supply-induced decline in 2003-04.
"There is general consensus that
domestic use of meal and oil will recover to a trend level during
the year," said Good. "The focus will be on soybean and soybean
product exports. Like corn, soybean shipments and sales started a
little slower than the torrid pace of a year ago, but inspections
were large for the week ended Oct. 14."
Cumulative shipments during the
first six weeks of the marketing year were 15 million bushels (18
percent) larger than during the same period last year. Unshipped
sales as of Oct. 7 were 60 million bushels (16 percent) less than
sales on the same date last year.
"The good news is that shipments and
sales to China are larger than those of a year ago," said Good. "The
USDA has projected a 10 percent increase in soybean consumption in
China this year and a 33 percent (205 million bushel) increase in
imports from all sources. The European Union and Mexico are buying
U.S. soybeans at a slower pace than that of last year."
In addition to monitoring the pace
of U.S. soybean
exports and export sales, the market's expectation of U.S. exports
will be influenced by the potential size and progress of the South
American crop, particularly the Brazilian crop. The USDA projects a
7.2 percent increase in soybean area in Brazil, but that is less
than the 9.6 percent increase projected in September.
"Still, that increase in conjunction
with normal yields would result in a 22.6 percent increase in
Brazilian production in 2005," Good noted. "A more modest 11.4
percent increase is projected for Argentina. South American crops at
the projected level would provide increased competition for U.S.
soybeans and would lead to a significant increase in stocks in South
America."
At current price levels, the soybean
market does not appear to be fully reflecting South American
production at the level forecast by the USDA. Reports of increased
costs and more limited production financing in Brazil suggests that
soybean area may be a bit less than forecast.
"With soybean rust having been a
problem in Brazil the past two years, yield uncertainty may persist
well into the growing season this year," said Good. "The fate of
that crop will determine if harvest price lows will hold or if new
lows will be established later in the year. There appears to be more
price uncertainty for soybeans than for corn."
[University
of Illinois news release]
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