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"Some further tightening of world stocks of all three
commodities was also indicated," said Darrel Good. For U.S.
corn, the USDA increased the projection of domestic use during
the current marketing year by 75 million bushels in response to
the smaller-than-expected estimate of June 1 inventories
released on June 30.
"The projection of feed and residual use was increased by 150
million bushels, and the projection of use of corn for
production of ethanol was reduced by 75 million bushels," Good
noted. "The large increase in expected feed and residual use
likely represents an unusually large residual use, indicating
that the 2004 crop was likely overestimated.
"Feed and residual use during the 2005-06 marketing year is
expected to be 300 million bushels -- nearly 5 percent -- less
than during the current year, reflecting a more typical level of
residual use."
Good added that the projection of exports during the current
marketing year was increased by 25 million bushels, resulting in
a 100-million-bushel reduction in the projection of year-ending
stocks.
"In the case of U.S. soybeans, the projection of domestic
crush during the current year was increased by 15 million
bushels, and the projection of residual use was increased by 15
million bushels in recognition that the 2004 crop was likely
overestimated," said Good. "Year-ending stocks are now projected
at 290 million bushels, well below the early year projection of
460 million bushels.
"For the 2005-06 marketing year, the USDA left the yield
projection unchanged at 39.9 bushels, resulting in a
5-million-bushel reduction in the production forecast, due to
smaller acreage revealed last month. Stocks at the end of the
2005-06 marketing year are now projected at 210 million bushels,
80 million less than the first projection of two months ago."
However, for the 2005-06 marketing year, the estimate of
beginning wheat stocks was increased by 13 million bushels, in
line with the grain stocks report issued last month. The
projected size of the 2005 harvest, at 2.208 billion bushels, is
68 million larger than the June projection.
"The production forecast contains the first survey-based
yield estimate for spring wheat," said Good. "The estimate of
harvested acreage of all classes of wheat was reduced by 839,000
acres from June, but the forecast of average yield was increased
by two bushels per acre. At 43.8 bushels, the average yield
projection is 0.6 bushels above the 2004 average."
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The projection of use of wheat during the current marketing year was
unchanged from the June projection, resulting in a year-ending
stocks projection of 700 million bushels, 81 million larger than
last month's projection.
For the 2005-06 corn marketing year, the USDA projects the
average farm price in a range of $1.70 to $2.10, 15 cents higher
than the June projection. At the close of trade on July 11, the
futures market reflected an average farm price for 2005-06 of about
$2.35.
"Part of the difference between the USDA forecast and the market
forecast is a difference of opinion about crop size," said Good.
"Based on current crop condition ratings, likely yield for the 2005
crop is below the USDA projection of 145 bushels. All else equal, a
yield of two bushels below the USDA projection would reduce
year-ending stocks by nearly 150 million bushels and raise the price
forecast by about 5 cents per bushel."
For soybeans, the USDA projects the 2005-06 marketing-year
average farm price in a range of $5.10 to $6.10 per bushel, 15 cents
above the June projection. At the close of trade on July 11, the
futures market reflected an average marketing-year farm price of
about $6.70.
"In the case of soybeans, current crop ratings suggest an average
yield very near that of the USDA projection," said Good. "The market
likely anticipates that crop ratings and yield potential will
continue to decline."
While part of the apparent price premium in both the corn and
soybean markets can be attributed to production concerns, part may
also reflect a difference of opinion about the fundamental value of
corn and soybeans.
"That is, for a given level of production, consumption and
stocks, the market appears to value corn, and particularly soybeans,
more highly than does the USDA," said Good.
[News release from the
University of Illinois College
of Agricultural, Consumer and Environmental Sciences]
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