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"With December 2006 corn futures trading near $2.73, and higher
prices for later delivery, the futures market reflects a 2006-07
average farm price near $2.65," said Darrel Good. "November
soybean futures near $6.25, along with a positive carry in the
price structure, reflect a 2006-07 average farm price near
$6.15." Good's comments came as he reviewed the markets in
anticipation of the USDA's monthly report of world supply and
demand prospects to be released on May 12. For U.S. crops, this
report will contain the first projections for the 2006-07
marketing year.
"For the current marketing year, the report may contain some
revisions for the projected level of consumption of corn and
soybeans," said Good. "In the case of corn, the rapid pace of
exports and export sales since early January may result in a
larger projection than the current 1.95 billion bushels. Exports
are running about 9 percent ahead of last year's pace, and
unshipped sales as of April 20 were 23 percent larger than
unshipped sales of a year ago.
"The pace of export activity is on track to reach about 2
billion bushels. A 25-million-bushels increase in the export
projection might be expected in the May report."
The rapid increase in the number of cattle placed in feedlots
suggests that domestic feed and residual use could also exceed
the current projection of 6 billion bushels, Good noted.
Similarly, continued expansion of ethanol production may result
in domestic processing use of corn exceeding the current
projection of 2.985 billion bushels.
"The June Grain Stocks report will provide the next
opportunity to calculate the rate of domestic corn use," said
Good. "Whether or not these projections are changed in the
upcoming report, the market appears to anticipate an eventual
increase. Stocks of corn at the end of the current marketing
year may be 100 to 125 million bushels less than the current
forecast of 2.3 billion bushels."
For soybeans, the pace of exports and export sales suggest
that marketing-year exports will be near, or slightly below, the
900 million bushels projected by the USDA. Export commitments
are about 21 percent smaller than those of a year ago, while the
USDA export projection is only 18 percent smaller than last
year's exports.
"The USDA projects the 2005-06 marketing-year crush of
soybeans at 1.72 billion bushels, 1.5 percent larger than the
crush of a year ago," he said. "Through the first seven months
of the year, the cumulative crush exceeded that of a year ago by
1 percent. While projections of consumption may not be changed
this month, the current pace of use suggests that use may be 20
million bushels less and year-ending stocks of 20 million
bushels more than current projections."
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 For the 2006-07 marketing year, the USDA's projections of crop
size will be based on March planting intentions, a projection of
unharvested acreage and an average yield based on an analysis of
trend yields. Last year, for example, harvested acreage of corn was
projected based on the relationship between harvested and planted
acreage for the previous six years, excluding 2002. The yield
forecast was based on the trend from 1960 to 2004, excluding 1988,
and adjusted for 2005 planting progress.
"A repeat of that procedure this year might result in projections
of harvested acreage of 70.9 million, an average yield of 149
bushels and a crop of 10.565 billion bushels," said Good. "The
market may actually expect a larger crop, guessing that planted
acreage will exceed intentions."
The USDA's projection of 2006-07 marketing-year consumption of
corn will be of equal interest to the projection of production, Good
added.
"A large increase in ethanol use will likely be projected, along
with a significant increase in exports and a small increase in feed
and residual use," he said. "Projected use could be near 11.5
billion bushels, pointing to year-ending stocks of 1.35 billion
bushels and an average farm price in a range centered on $2.25 to
$2.30 per bushel."
For soybeans, the 2006 production forecast will start with March
planting intentions. Last year, the projection of harvested acreage
was based on the five-year average planted-to-harvested acreage
ratios by state. The average yield was based on an analysis of 1978
through 2004 regional trends.
"That process in 2006 should result in a very large production
forecast, likely exceeding 3.2 billion bushels," said Good. "There
will also be more than usual interest in the forecasts of 2006-07
marketing year consumption of soybeans. Those forecasts will reflect
the expectations about soybean production in South America, Chinese
soybean demand and the impact of high fuel prices on expansion in
biofuels production.
"It is hard to imagine, however, that the projections of use will
exceed expected production, so that larger year-ending stocks and a
lower average price may be anticipated for 2006-07. The forecast
price range may center on a value near $5.25 per bushel. The market
may expect a smaller crop than forecast, anticipating that planted
acreage will be less than intentions. However, recent strength in
soybean prices is not encouraging producers to reduce soybean
acreage."
[University
of Illinois College of Agricultural, Consumer and Environmental
Sciences news release]
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