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"More significant price variability is possible after the first
of the year, with South American crop conditions being of most
interest," said Darrel Good. Good's comments came as he
reviewed the corn and soybean markets, which are shifting away
from concerns about crop size.
"For the past six months, corn and soybean prices have been
heavily influenced by the prospective size of the 2005 U.S.
harvest," he said. "Now that crop size is pretty well known,
other factors will have a larger influence on prices. These
include the rate of consumption of the 2005 crop, prospects for
Southern Hemisphere crops and expectations about the magnitude
of planted acreage in the United States in 2006."
Little is known at this time about the pace of domestic corn
consumption, he noted. Currently, the pace of corn exports
trails the rate needed to reach the USDA's projection of total
exports for the year.
Through Nov. 17, corn exports totaled about 402 million
bushels (estimated from weekly inspections reports). The total
is almost identical to the total of a year ago.
"However, the USDA projects a 10 percent year-over-year
increase in exports," said Good. "Weekly shipments have averaged
about 36.1 million bushels per week. To reach the USDA
projection of 2 billion for the year, shipments from now through
August 2006 need to average about 39 million bushels per week.
"Unshipped sales of 305 million bushels as of Nov. 10 were 40
million less than on the same date last year. The pace of U.S.
export sales has accelerated in the past two weeks, but the slow
start is a source of concern. Over the next several months, the
magnitude of competition from Chinese corn may be the
determining factor in the size of U.S. exports."
Soybean exports during the first 11 weeks of the 2005-06
marketing year totaled about 257 million bushels, 73 million
less than cumulative shipments at this time last year. Shipments
are running 22 percent behind the pace of a year ago, while the
USDA projects a decline of only 2.5 percent for the year.
Unshipped sales as of Nov. 10 were 60 million bushels less than
those of a year earlier.
"While the USDA has already lowered the projection of U.S.
marketing-year exports by 40 million bushels, the current pace
of exports and export sales is not encouraging," said Good. "Two
important keys to the magnitude of this year's export program
will be Chinese demand and the size of the South American crop.
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"Lagging sales to China account for much of the slow start to the
U.S. export program this year. An additional factor that is growing
in importance to world soybean meal demand is the spread of bird
flu. A significant decline in poultry numbers would reduce the
demand for feed, at least in the short run. Poultry numbers can
recover quickly, however, so the extent of potential demand weakness
remains a source of considerable uncertainty."
Good added that, last month, some support to soybean prices was
provided by a slow start to the planting season in South America,
due to dryness in some areas; indications that Brazilian soybean
acreage will decline; and the early discovery of Asian soybean rust
in Brazil.
"Recent weather has been more favorable, however, and planting
progress and early season crop prospects are generally favorable,"
he said. "The USDA currently projects the 2006 South American crop
at 3.9 billion bushels, 370 million larger than the 2005 harvest.
"A crop of that size would contribute to an increase in world
soybean inventory and keep prices under considerable pressure. The
market will continue to monitor crop progress and crop conditions
closely for any indication that yields could be adversely affected."
After the first of the year, the market will focus more intently
on likely changes in U.S. corn and soybean acreage in 2006, he
noted.
"The USDA's estimate of winter wheat acreage, to be released on
Jan. 12, will provide some insight into the likely total corn and
soybean acreage in 2006," Good said. "The mix of corn and soybean
acreage will continue to be a subject of much interest. Some
analysts have already made forecasts of likely acreage shifts.
Forecasts are in a wide range, with some thinking that the sharp
increases in costs could result in a 3- to 5-million-acre increase
in soybean plantings and a similar decline in corn acreage.
"Others believe that acreage shifts will be much more modest, as
the increase in input costs have moderated and producers remain tied
to crop rotations. It may be a little early to make an informed
forecast about acreage since the market can still influence planting
decisions. In addition, producers will want to monitor weather
conditions to assess the potential of Asian soybean rust in 2006."
[University
of Illinois College of Agricultural, Consumer and Environmental
Sciences news release]
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