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March 1 marked the midpoint of the 2005-06 marketing year for
corn and soybeans. At this time of year, the market
traditionally begins to change focus from the rate of
consumption of the old crop to prospects for acreage and
production of the new crop. "That will likely be true this
year as well, since old crop supplies of both crops are large,"
said Darrel Good. "For corn, consumption and demand prospects
are generally very favorable. The level of weekly export sales
dropped off during the week ended Feb. 23 but was extremely
large during the previous six weeks, averaging 59.4 million
bushels per week.
"Japan has accelerated its rate of purchases, Chinese exports
are slowing, and dry weather in Argentina has significantly
reduced the size of the crop there. U.S. exports for the current
year may exceed the USDA projection of 1.85 billion bushels, and
the potential exists for a significant increase in exports
during the 2006-07 marketing year."
However, Good noted that the rapid expansion of bird flu
raises some concerns about near-term world feed demand.
"However, if bird flu results in a permanent reduction in
world poultry production, an increase in red meat production
might eventually be required, resulting in increased feed
consumption in the long term," said Good. "Domestic demand
prospects also remain strong due to increasing livestock
production and expanding ethanol production. These developments
should support increased corn consumption well beyond the
2005-06 marketing year."
For soybeans, Good noted that midyear is characterized by a
continued slow pace of U.S. exports and export sales, prospects
for a record-large South American crop, escalating domestic oil
stocks, and concerns about the near-term implications of bird
flu for soybean meal demand.
Through Feb. 23, U.S. exports plus outstanding sales lagged
last year's total by 22 percent. For the year, the USDA projects
a decline in exports of 17.5 percent.
"With the growing season coming to an end, most observers
believe that the South American crop will be record large, with
more uncertainty about the Argentine crop than the Brazilian
crop," said Good. "U.S. soybean oil stocks at the end of the
most recent reporting month -- January 2006 -- were estimated at
2.477 billion pounds, nearly 60 percent larger than stocks of a
year ago. Stocks were at the highest level since August 2002."
The USDA's grain stocks report to be released on March 31
will provide an opportunity to gauge the rate of corn and
soybean consumption during the second quarter of the 2005-06
marketing year.
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 "At this juncture, it appears that U.S. corn consumption and
demand prospects are stronger than prospects for U.S. soybeans,"
said Good.
For the new crop, the focus will be on the USDA's prospective
plantings report to be released on March 31.
"Most analysts are on record with expectations of a decline in
corn planting intentions and an increase in intentions for
soybeans," Good said. "The debate generally centers on the magnitude
of the changes. Acreage of spring-planted crops, however, could
deviate from intentions due to escalating spring wheat prices;
potential for abandoned hard red winter wheat acreage to be
replanted to other crops; changes, if any, in price relationships of
spring-planted crops; and spring weather conditions."
Spring weather conditions will also set the tone for 2006 yield
expectations for corn and soybeans.
"The persistence of moderate to severe drought conditions in
parts of Illinois, Iowa and much of the southern Plains increases
concerns about yield potential," said Good. "As usual, forecasts of
summer weather conditions are not consistent at this time."
Through the first half of the 2005-06 marketing year, the
weighted U.S. average farm price of corn is estimated at $1.89, very
near the midpoint of the USDA's forecast of the average for the year
-- $1.90. The average overnight spot cash bid price of corn in
central Illinois has ranged from a low of $1.635 on Oct. 18 to $2.14
on March 4.
"The range of $0.505 is at the low end of historical experience,"
said Good. "New highs in the spot cash price are certainly possible,
particularly if weather concerns persist into the spring."
For soybeans, the weighted U.S. average farm price during the
first half of the 2005-06 marketing year is estimated at $5.73, well
above the midpoint of the USDA's forecast of the average price for
the year -- $5.50. The average overnight spot cash price of soybeans
in central Illinois has ranged from $5.15 on Oct. 10 to $6.055 on
Jan. 4.
"That price was at $5.685 on March 4," said Good. "The range of
$0.905 is very low by historical standards. The range has been less
than $1.10 only twice in the last 32 years.
"A new high in the spot cash price would require some significant
concern about the 2005 U.S. crop. On the other hand, a favorable
growing season could result in a new low in that cash price."
[University
of Illinois College of Agricultural, Consumer and Environmental
Sciences news release]
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