"Unless the U.S. average yield falls well below trend, surpluses
will continue, assuming a normal South American growing season,"
said Darrel Good. "Potential for much higher prices may be less
than for corn.
"In addition, the premiums for post-harvest
delivery are not as large as for corn, even though the new-crop
basis is generally weak. Under current price relationships,
physical storage of soybeans beyond harvest is not as attractive
as storage of corn. Ownership beyond harvest with futures or
basis contracts may be less expensive than storage if the carry
Good's comments came as he reviewed the corn and soybean
markets and the upcoming USDA report. Private forecasts, he
noted, generally reflect expectations that the report will show
potential for average yields to be slightly above trend for both
At the end of July, the USDA's weekly report of crop
conditions showed that 56 percent of the U.S. corn crop was in
good or excellent condition. That compares with 53 percent at
the same time last year and 57 percent at the end of the season
"Based on the best fit between percentage of the crop rated
good or excellent at the end of the season and the U.S. average
yield since 1986, a rating of 56 percent at the end of the 2006
season would suggest a yield near 145 bushels, about four
bushels below trend," said Good.
"However, the U.S. average yield has exceeded the yield
forecast by crop condition ratings for seven consecutive years.
The difference ranged from 0.4 bushels to 7.4 bushels, averaging
3.3 bushels. That pattern might point to a yield near 148
bushels if condition ratings at the end of the season are near
those at the end of July. Each percentage point change in the
portion of the crop rated good or excellent would alter the
yield expectation by about 0.65 bushels."
At the close of trade on Aug. 4, the corn futures market
reflected a 2006-07 marketing year average farm price near
$2.65. That calculation assumes that the relationship between
the monthly average price received by producers and the average
monthly price of the nearby futures contract is at the average
of the past five years.
Based on the relationship between the year-ending
stocks-to-use ratio and the marketing year average price since
1998-99, a price of $2.65 implies a stocks-to-use ratio of 7.8
percent at the end of the 2006-07 marketing year. If use is near
the 11.735 billion bushels projected by the USDA, the current
price reflects a Sept. 1, 2007, inventory of only 915 million
bushels, implying an average yield of 146.7 bushels.
[to top of second column]
"The market appears to be trading an average yield below trend
value or is anticipating stronger demand than reflected by the USDA
projections," said Good.
At the end of July, the USDA's weekly report of crop conditions
showed 53 percent of the soybean crop in good or excellent
condition. That compares with 54 percent at the same time last year
and 57 percent at the end of the 2005 growing season.
"A rating of 53 percent good or excellent at the end of the 2006
season would suggest a yield near 41 bushels, slightly higher than
the USDA's calculated trend value of 40.7 bushels," said Good. "Each
percentage point change in the portion of the crop rated good or
excellent would alter the yield expectation about 0.2 bushels."
At the close of trade on Aug. 4, the soybean futures market
reflected a 2006-07 marketing year average price near $5.95, under
the same assumptions as outlined for corn. The relationship between
the year-ending stocks-to-use ratio and the marketing year average
farm price has not been as stable for soybeans as for corn.
"The average price during the current year, for example, will be
about 25 cents higher than projected by the stocks-to-use ratio,"
said Good. "The instability in that relationship makes it more
difficult to calculate the yield currently being traded by the
The USDA projects a 2006-07 year-ending stocks-to-use ratio of
18.7 percent. Based on historic relationships, that ratio points to
a 2006-07 marketing year average farm price near $5.40. The current
soybean futures prices for the 2006-07 marketing year appear to
reflect some combination of below trend yield, continued strong
speculative demand or larger consumption of U.S. soybeans during the
"Pointing to the generally weak new-crop corn basis and the
potential to significantly reduce inventories during the year ahead,
most analysts are suggesting that producers plan to store a large
portion of the new crop in anticipation of higher cash prices," said
Good. "With a large carry in the market and the resulting sharply
higher prices for delivery in 2007, however, the question is whether
the stored crop should be unpriced or forward priced for later
delivery to capture the higher prices already offered."
of Illinois College of Agricultural, Consumer and Environmental
Sciences news release]