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"If these conditions persist, the key for longer term price
levels may be on the supply side," said Darrel Good. "At what
rate will world production, through a combination of higher
yields and increased acreage, in, for example, South America,
expand?" Good's comments came as he reviewed the USDA's
monthly report of world supply and consumption prospects. The
report provided some fundamental support for crop prices,
particularly corn and wheat prices. As a result, new highs were
established for some futures contracts of corn, soybeans and
wheat.
"Corn, soybean and wheat prices continued to move higher
following the report, with corn futures reaching new contract
highs from September 2006 through December 2008," said Good.
"Soybean futures reached new highs from May 2007 through
November 2008, while wheat futures established new highs for all
contracts.
"Unlike many 'bull' markets that are led by nearby prices
that generate inversions in the price structure, the current
rally is being led by deferred contracts, particularly for corn
and soybeans."
In the report, the USDA increased the forecast of U.S. corn
exports for the current marketing year by 75 million bushels and
reduced the forecast of year-ending stocks by the same amount.
At 2.025 billion bushels, exports would be the largest in 10
years.
"The current forecast of year-ending stocks, 2.226 billon
bushels, is 200 million bushels less than the January forecast,"
Good noted. "For the 2006-07 marketing year, acreage at the
level reported in the March Prospective Plantings report and a
trend yield -- 149 bushels -- results in a production forecast
of 10.55 billion bushels.
"Consumption is projected at 11.645 billion bushels, 635
million above the projection for the current year, led by a
550-million-bushel -- 34 percent -- increase in the amount of
corn used for ethanol production."
Exports, Good added, are expected to grow by 125 million
bushels. Sept. 1, 2007 stocks are projected at 1.141 billion
bushels, and the 2006-07 marketing-year average farm price is
expected to be between $2.25 and $2.65.
"The midpoint of that price range would be the highest
average farm price in 10 years," said Good.
For soybeans, the USDA did not alter any domestic projections
for the current year. The 2005-06 marketing-year farm price is
expected to average $5.65, only 9 cents below the 2004-05
average, despite a large increase in year-ending stocks. For the
2006-07 marketing year, acreage at the level reported in March
and an average yield of 40.7 bushels would result in a crop of
3.08 billion bushels, about equal to the record crop of 2005.
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 "The yield of 40.7 bushels is projected from an analysis of
regional trends over the period 1978-2005 and is 2.6 bushels below
the record yield of 2005," said Good. "Consumption is forecast at
2.999 billion bushels, 217 million more than the projection for the
current year, led by a 190-million-bushel increase in the export
projection.
"U.S. stocks of soybeans are expected to grow from 565 million
bushels on Sept. 1, 2006, to 650 million on Sept. 1, 2007, and the
2006-07 marketing-year average farm price is projected in a range of
$5.10 to $6.10."
For the current U.S. wheat marketing year, which ends on May 31,
the projection of exports was reduced by 15 million bushels and the
projection of year-ending stocks was increased by an equal amount.
The first forecast of the 2006 U.S. winter wheat crop came in at
1.323 billion bushels. That estimate is 176 million bushels (12
percent) smaller than the 2005 harvest, even though planted acreage
was about equal to that of last year. Harvested acreage of winter
wheat is projected at 31.177 million bushels, 2.617 million less
than harvested last year, and the U.S. average yield is projected at
42.4 bushels, two bushels below the 2005 average.
"Production declines are expected to be large in Texas (63
percent) and Oklahoma (47 percent) due to severe drought
conditions," said Good.
"Production in the largest winter wheat producing state of Kansas
is projected at 319.6 million bushels, 17 percent smaller than the
2005 harvest but a little larger than the 2004 harvest.
"Production is expected to be larger in the Midwest and the
Southeast, with soft, red winter wheat production forecast at 356
million bushels, 15 percent larger than the 2005 crop."
Based on planting intentions and trend yield, the 2006 spring
wheat crop is expected to total 550 million bushels, 56 million
smaller than the 2005 crop. Production of all classes of wheat is
projected at 1.873 billion bushels, 232 million smaller than the
2005 harvest and the smallest crop in four years.
"Stocks of U.S. wheat are expected to decline by 100 million
bushels from June 1, 2006, to June 1, 2007, resulting in a 2006-07
marketing-year average price in a range of $3.50 to $4.10, compared
to an average of $3.42 for the year just ending," said Good.
[University
of Illinois College of Agricultural, Consumer and Environmental
Sciences news release]
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