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"The current weather pattern and short-term forecasts are not
ideal, but generally support prospects for at least trend yields
in 2006," said Darrel Good. Good said that the upcoming USDA
report "has more than the normal amount of importance for the
crop markets."
Producer planting intentions, as revealed in the USDA's March
31 Prospective Plantings report, surprised the markets, he
noted. Producers reported intentions to increase soybean acreage
by 6.6 percent from the level of plantings in 2005. Intentions
for corn were down 4.6 percent, and intentions for all spring
wheat acreage were down 6.4 percent.
"The large shift in intentions away from corn to soybeans was
likely driven by the large increases in the costs of producing
corn and the relatively high price of soybeans in the face of
historically large surpluses," he said. "The decline in
intentions for spring wheat came as a surprise since wheat
prices had moved sharply higher from December 2005 through
February 2006."
Good observed that the market apparently gave corn and
soybean producers the wrong signal in early 2006. While soybean
stocks were accumulating to record levels, corn demand was
increasing sharply, suggesting that current surpluses could
disappear quickly without an increase in production.
"More corn and fewer soybean acres appeared justified, but
market incentives favored soybeans," said Good. "Demand
prospects for corn have continued to improve. The current
projection of consumption of U.S. corn during the 2005-06
marketing year is 225 million bushels larger than the February
projection.
"At 2.176 billion bushels, year-ending stocks are still
expected to be ample, but the surplus could dwindle next year."
Based on March planting intentions and a trend yield, the
USDA projects stocks of U.S. corn at the end of the 2006-07
marketing year at 1.091 billion bushels, only 9.4 percent of
projected consumption. In contrast, the prospective surplus of
soybeans has increased.
Year-ending stocks of soybeans are now projected at 570
million bushels, up from the 555 projected in February. Stocks
at the end of the 2006-07 marketing year are projected at 655
million bushels.
"The general expectation is that producers altered their
planting decisions following the release of the Prospective
Plantings report," said Good. "The corn and soybean markets did,
in fact, briefly encourage producers to plant more corn and
fewer soybean acres."
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 For example, the November 2006 soybean futures price was 2.35
times higher than the December 2006 corn futures price on March 1,
about the time the planting intentions survey was conducted.
"That ratio was 2.37-to-1 the day before the report was
released," said Good. "A week after the report was released, that
ratio had declined to 2.14-to-1. However, two weeks after the
report, the ratio had recovered to 2.22-to-1, and four weeks after
the report the ratio had increased to 2.3-to-1.
"At that time, the USDA reported that producers had planted about
half the corn acreage and only 10 percent of the soybean acreage."
Good wondered if the brief period of higher corn prices relative
to soybean prices was enough to encourage a change in planting
intentions or if producers responded to the improving corn demand
situation independently of price signals. Or, did spring wheat
producers respond to the sharp rally in prices that occurred in the
planting season?
"Private forecasts suggest that producers responded in a big way,
with expectations that the June Acreage report could show as much as
2.5 million more acres of corn and 2 million fewer acres of soybeans
than reported in March," he said. "The market seems to agree.
"At the close of trade on June 16, the November soybean futures
price was 2.4 times the December 2006 corn futures price. Such a
shift would be large by historic standards. Since 1996, the largest
increase in corn acreage from March to June was 1.964 million in
2004. The largest decline in soybean acreage from March to June
during that time frame was 1.241 million in 2001.
"Private sources also suggest that spring wheat acreage will
exceed intentions."
Forming expectations about planted acreage of spring crops is
further complicated by the hard red winter wheat situation. USDA
estimates of harvested acreage indicate large acreage abandonment
due to drought conditions.
"Last year, the difference between planted and harvested acreage
of all winter wheat was 6.639 million," said Good. "The difference
this year is estimated at 10.227 million.
"Producers may report intentions to plant some of that abandoned
acreage to spring-planted crops if moisture levels are sufficient."
[University
of Illinois College of Agricultural, Consumer and Environmental
Sciences news release] |
