"The market must now try to quickly remedy that mistake by
encouraging producers to moderate the shift," said Darrel Good.
"Prices certainly moved in that direction after the USDA's
prospective plantings report was issued.
"At an average yield
of 40 bushels for soybeans and 150 bushels for corn, the market
on March 31 reduced the potential profitability of soybeans
relative to corn by nearly $17 per acre. It appears that prices
may need to continue to change in favor of corn over soybeans.
In addition, if 2006 yields are near trend value, deferred
futures prices are still overvalued by a considerable amount for
Good's comments came as he reviewed the USDA report, which
provided more than the usual number of surprises. Producers
reported intentions to shift significant acreage from corn to
soybeans and to sharply reduce acreage of durum wheat.
Producers reported intentions to plant only 78.019 million
acres of corn in 2006, 3.74 million less than planted in 2005.
The decline is about 2.5 million acres more than the average
"Those intentions are widespread geographically, with the
exception of Minnesota and North Dakota, where intentions are
unchanged and up 240,000 acres, respectively," said Good. "The
largest decline, 700,000 acres, is planned in Illinois. The
large decline there reflects the combined increase in winter
wheat seedings and intentions to increase soybean acreage."
Intentions for planting of all feed grains included in the
March report -- corn, sorghum, barley and oats -- totaled 92.493
million acres, 3.841 million less than the area planted in 2005.
Barley acreage is scheduled to decline by 208,000, or 5.4
percent, while oat seedings are expected to increase by 78,000,
or 1.8 percent.
For soybeans, producers reported intentions to plant a record
76.895 million acres in 2006, 4.753 million more than planted in
2005 and 2.675 million more than the average pre-report guess.
"The planned increase spans all producing regions except the
Southeast, where intentions are 71,000 acres -- 3.1 percent --
below actual plantings in 2005," said Good. "The largest planted
increase is 1.2 million acres in North Dakota. Illinois, at
600,000 acres, is second, followed by Indiana at 500,000 acres."
Intentions for all oilseeds included in the March report --
canola, flaxseed, peanuts, soybeans and sunflower -- totaled
82.295 million acres, 3.645 million more than planted in 2005.
Plans are to reduce acreage of each of the crops other than
Planted acreage of winter wheat and intentions for spring
wheat total 57.128 million acres, 101,000 fewer acres than
seeded last year. Winter wheat seedings are up by 971,000 acres,
or 2.4 percent, while intentions for durum wheat are down
935,000 acres, or 33.9 percent, and intentions for other spring
wheat are down 137,000 acres, or 1 percent. North Dakota
producers plan to reduce acreage of all spring wheat by 1.08
million acres, or 12.3 percent.
[to top of second column]
"Unlike the planting intentions estimates, the estimates of March
1, 2006, inventories of corn, soybeans and wheat were almost
identical to the average pre-report expectations," said Good. "At
6.987 billion bushels, the March 1 inventory of corn exactly equaled
the average pre-report estimate.
"The stocks figure implies that 1.614 billion bushels of corn
were fed in the second quarter of the marketing year and that 3.855
billion bushels were fed in the first half of the marketing year. If
feed and residual use of corn is following a 'typical' seasonal
pattern that results in 64 percent of the marketing-year total use
occurring in the first half of the year, use for the year is on
track to reach about 6.025 billion bushels."
Good added that the recent large increase in the number of cattle
on feed, however, should be expected to push that total a little
higher. The current USDA forecast is for use of 6 billion bushels.
At 1.669 billion bushels, the March 1 inventory of soybeans was
record-large, but it was about 10 million less than the average
trade guess. The stocks figure implies that seed, feed and residual
use of soybeans during the first half of the marketing year totaled
175.8 million bushels.
"That level of use is historically consistent and provides
evidence that the size of the 2005 harvest has been accurately
estimated," said Good.
With the U.S. average corn yield near trend value in 2006,
intended acreage points to a crop of about 10.6 billion bushels.
"As pointed out last week, corn use during the 2006-07 marketing
year could balloon to about 11.5 billion bushels," said Good. "Under
that scenario, Sept. 1, 2007, inventories would be reduced to about
1.34 billion bushels, suggesting a 2006-07 marketing-year average
farm price of about $2.30 per bushel. Futures settlement prices on
March 31 pointed to a 2006-07 average farm price of about $2.60 per
With the U.S. soybean yield near trend value in 2006, intended
acreage points to a crop of about 3.2 billion bushels. Under that
scenario, Sept. 1, 2007, stocks would grow to about 750 million
bushels, pointing to a 2006-07 average farm price of about $5.20 at
best, and perhaps significantly lower.
"It is difficult to anticipate the price of soybeans at the
potentially huge level of stocks relative to the level of
consumption since there is no historical experience of such a large
stocks-to-use ratio," said Good. "Futures settlement prices on March
31 pointed to a 2006-07 marketing-year average farm price of about
of Illinois College of Agricultural, Consumer and Environmental
Sciences news release]