"Current world production and demand prospects, however, seem to
be relatively more favorable for corn than for soybeans," said
Good's comments came as he reviewed U.S. soybean
acreage prospects in the coming growing season. There seems to
be widespread agreement that U.S. producers will reduce corn
acreage and increase soybean acreage in 2006. A shift in that
direction, however, seems to be contrary to the direction
suggested by current and emerging market fundamentals.
"One of the primarily reasons for expecting more soybean
acreage and less corn acreage in the United States this year is
the large increase in the direct costs of producing corn
relative to the increase for soybeans experienced over the past
few years," said Good. "The larger increase in costs has been
driven primarily by high costs of nitrogen fertilizer."
Good said the higher cost for corn is expected to result in
some switch to soybeans in areas where soybean yield potential
is generally high relative to corn yield. Concerns about a dry
growing season in 2006 might also motivate a more widespread
increase in soybean acreage due to the perception that soybeans
are more tolerant of dry growing conditions.
"A rebound in total acreage in those areas with prevented
planting in 2005 may also contribute to an increase in soybean
acreage, although spring wheat should compete well for that
acreage," he said.
Domestically, there is a high likelihood of continued rapid
expansion in the use of corn for ethanol production. That use is
projected at 1.6 billion bushels this year, 277 million more
than used last year and 432 million more than used two years
"The year-over-year increase totaled 13 percent last year and
is projected at 21 percent this year," he said. "Assuming a
trend corn yield in 2006, the increase in corn used for ethanol
during the 2006-07 marketing year may be equivalent to
production from more than 2.5 million acres."
Domestic feed and residual use of corn during the 2006-07
marketing year will be supported by expanding beef, pork and
"A modest 2 percent increase in feed use would be 120 million
bushels," said Good. "The potential increase in feed use of corn
might be limited by increased production of byproduct feeds from
the ethanol industry.
"Under the simplifying assumption that one-third of the corn
used for ethanol is returned to the byproduct feed market, and
half of that substitutes for corn feeding, a 360-million-bushel
increase in corn used for ethanol, for example, would produce
byproduct feed to substitute for 60 million bushels of corn.
Even if all of that byproduct is fed domestically, the net
increase of 60 million bushels of corn feeding is equivalent to
about 400,000 acres."
U.S. corn export prospects for the remainder of the 2005-06
marketing year and for the 2006-07 marketing year have improved
significantly for at least two reasons, he noted.
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"First is the shortfall in production in Argentina," said Good.
"The USDA currently projects the 2006 harvest there at 610 million
bushels, about 160 million smaller than the 2005 harvest. Exports
from Argentina are expected to decline by an equal amount. Larger
reductions are possible.
"Second is the increasing evidence that China will progressively
be less of an export competitor and an eventual importer of corn.
The rate at which that will occur is not certain. Chinese corn
exports for the current year are projected at about 235 million
bushels. The United States could easily experience an increase of
150 million bushels in export demand from reduced competition from
China in the year ahead."
Good noted that a 225-million-bushel increase in U.S. corn
exports next year is not out of the question and would be equivalent
to about 1.5 million acres.
"The expected increase in consumption of U.S. corn during the
2006-07 marketing year can be supported from inventories of the 2005
crop if acreage does not decline much and the U.S. average yield is
near trend," he said. "A large decline in acreage, and/or a
shortfall in the average yield, would likely result in a significant
decline in year-ending stocks. If corn consumption increases over
time, as expected, more U.S. corn acreage will eventually be needed,
even with trend yield increases."
For soybeans, the need to expand U.S. acreage in the future is
not obvious, he added.
"The 2006 South American crop is expected to be record-large,
U.S. ending stocks for the current marketing year are expected to
equal 20 percent of annual consumption, and world stocks of soybeans
are expected to equal 25 percent of annual consumption," he said.
"Growth in consumption of U.S. soybeans is expected to occur at a
slower rate than the growth in corn consumption.
"Domestic meal consumption for livestock feed should grow at a
rate equivalent to corn feeding. The main difference, however, is
that the magnitude of fuel use of soybean oil will likely be a much
lower level than ethanol use of corn in the immediate future.
Exports of U.S. soybeans will be supported by growing Chinese
demand, but competition from South America will remain stiff."
One of the functions of the market is to direct U.S. production
decisions in an environment of much uncertainty about world demand,
competition from other areas and growing season weather, he said.
"Based on current conditions, however, it appears that the
soybean prices need to be at a level to discourage a large increase
in U.S. acreage in 2006," Good said.
of Illinois College of Agricultural, Consumer and Environmental
Sciences news release]