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"The price action suggests that the forecasts were
well-anticipated and that the market is now focusing on other
factors," said Darrel Good. "Still, the recent trading range for
corn futures is not expected to be expanded. That would mean
March corn futures trading between $2 and $2.20. "The
magnitude of the strength in soybean futures following the USDA
report is more surprising. The recent trading range has seen
January futures near $6.05. That level may soon be challenged
again."
Good's comments came as he reviewed recent USDA reports that
lowered the forecasts for U.S. corn and soybean exports during
the current marketing year. As a result, the projection of
year-ending stocks was increased for both crops.
U.S. corn exports during the current marketing year are now
projected at 1.9 billion bushels -- 100 million less than
projected last month but 86 million more than exported last
year. The reduction corresponded to an increase of 155 million
bushels, or 3 percent, in the estimated size of the Chinese
crop.
"Exports of corn from China during the current marketing year
are projected at 235 million bushels -- double the projection of
last month but 60 million less than exported last year," Good
noted. "Year-ending stocks of U.S. corn are projected at an
18-year high of 2.419 billion bushels.
"Projected stocks represent 22.5 percent of the projected
consumption during the current marketing year. That
stocks-to-use ratio would be the highest in 13 years. Stocks of
corn, and total feed grains, are expected to decline in most
other surplus production countries, particularly in China."
The USDA did not change the forecast of the marketing-year
average farm price of corn, he added. The average is expected to
be in a range of $1.60 to $2 per bushel. The average price
during the first quarter of the marketing year was very near the
midpoint of that range.
"The average price received by farmers during September and
October was relatively high, reflecting the delivery of crop
contracted for harvest delivery at higher prices during the
growing season," he said.
Based on a model that correlates the year-ending
stocks-to-use ratio to the average farm price, a year-ending
stocks-to-use ratio of 22.5 percent points to a 2005-06 average
farm price of $1.84.
"Based on the average prices received during the first
quarter of the year and current futures prices for the rest of
the year, the market now reflects an average farm price for the
year of $1.97," said Good. "Current prices, then, seem a bit
high based on the projected level of year-ending stocks.
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"Prices are likely being supported by a slow pace of selling by
farmers, expectations of reduced acreage in the United States in
2006 and persistent reports of a higher-than-normal probability of a
dry growing season in 2006. The market is currently offering an
average 2006-07 marketing-year average farm price of about $2.40."
U.S. soybean exports during the current marketing year are now
projected at 1.02 billion bushels. That is 55 million bushels below
the November projection and 83 million below the record exports
during the 2004-05 marketing year.
"The USDA cited the current low level of U.S. export commitments
-- the lowest since 1998 -- and ongoing competition from South
America as reasons for the reduction," said Good. "South American
soybean exports during the current marketing year are projected at
1.4 billion bushels -- about 37 million above the November
projection and 180 million more than exported last year.
"Year-ending stocks of U.S. soybeans are projected at a 19-year
high of 405 million bushels. The projection of year-ending
stocks-to-use ratio is at an 11-year high of 14 percent."
The USDA expects the 2005-06 marketing-year average farm price of
soybeans to be in a range of $5 to $5.70, similar to last month's
projection of $4.95 to $5.75. The average price during the first
quarter of the marketing year was near $5.70.
"Our model relating the year-ending stocks-to-use ratio to
average farm prices suggests that ending stocks of 14 percent of use
should result in an average farm price of $5.05 per bushel," said
Good. "Based on the average cash price during the first quarter of
the year and the current futures prices for the remainder of the
year, the market reflects an average farm price of $5.80. On the
surface, then, the current market appears to be a little
overvalued."
Good said the recent price strength likely reflects the slow pace
of selling by farmers, uncertainty about the South American growing
season (both dryness and soybean rust) and some uncertainty about
the U.S. growing season in 2006.
"The market is currently reflecting a 2006-07 average farm price
of $6, even though many observers expect an increase in soybean
acreage in the United States in 2006," said Good.
[University
of Illinois College of Agricultural, Consumer and Environmental
Sciences news release]
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