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"Soybean prices will likely continue to follow corn prices,"
said Darrel Good. Good's comments came as he reviewed the
USDA's November forecasts for the size of the 2006 corn and
soybean crops, which were smaller than expected. For corn, the
smaller crop and high prices are expected to reduce feed and
residual use to a three-year low and to limit the year-over-year
increase in exports.
Good noted that the size of the 2006 U.S. corn crop is now
forecast at 10.475 billion bushels, 160 million bushels below
the October forecast and 369 million below the September
forecast. The U.S. average yield is forecast at 151.3 bushels,
3.4 bushels below the September forecast.
"The largest reductions in yield and production forecasts
came in Illinois, Indiana and Iowa," said Good. "The U.S. crop
is expected to be 367 million bushels smaller than the 2005 crop
and 1.062 billion smaller than the record crop of 2004."
The USDA's World Outlook Board reduced the 2006-07 marketing
year forecast of domestic feed and residual use of corn by 50
million bushels. The forecast of 6.05 billion is 86 million
below use of last year. The forecast of marketing year exports
was also reduced by 50 million bushels.
"The forecast of 2.2 billion is 53 million bushels above
exports of a year ago and would be the largest in 11 years,"
said Good. "Chinese corn exports are projected at 157 million
bushels, about 10 million more than exported last year. The
Chinese corn crop is estimated at 5.59 billion bushels, about
105 million larger than the 2005 crop, but the increase is
expected to be consumed domestically."
As of Nov. 9, the USDA reported cumulative U.S. corn exports
for the current marketing year at 430 million bushels, 19
percent above the total of a year ago.
"Last year, exports started slowly and then accelerated at
the beginning of January 2006," said Good.
For the week ended Nov. 2, the USDA reported new export sales
of 76 million bushels, with total unshipped sales as of that
date standing at 455 million bushels, compared with 288 million
on the same date last year. At 885 million bushels, shipments
plus outstanding sales account for 41 percent of the USDA's
export projection for the year.
With the world wheat crop about 1.18 billion bushels (5.2
percent) smaller than the 2005 crop and world wheat consumption
expected to drop by 300 million bushels (1.4 percent), the
export demand for U.S. corn is expected to remain very strong
over the next several months, Good said.
"The USDA's Dec. 1 Grain Stocks report, to be released on
Jan. 12, will provide the first measure of the rate of domestic
feed and residual use of corn," said Good. "Large numbers of
livestock being fed suggest a high rate of feed and residual use
during the first quarter of the marketing year."
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 The USDA projects corn inventories at the end of the current
marketing year at 935 million bushels, or 7.9 percent, of projected
consumption. Based on the relationship between stocks and price in
the relatively strong demand period of 1989-90 through 1997-98, a
stocks-to-use ratio of 7.9 percent would suggest a 2006-07 marketing
year average farm price of about $2.77.
"The USDA projects an average price between $2.80 and $3.20,"
said Good. "At the close of trade on Nov. 10, the futures market
implied an average farm price near $3.25. The relatively high
futures prices likely reflect a number of factors.
"Fundamental strength likely stems from expectations that the
January corn production estimate will be smaller than the November
forecast, lack of evidence that corn consumption has slowed in line
with USDA projections, and the need to encourage a large increase in
U.S. corn acreage in 2007."
The expectation of a smaller production estimate in January
likely stems from the modest tendency for the direction of change in
January to follow that of November. That relationship, however, is
weaker than the relationship in November and October. In addition,
changes in January historically have reflected the inclusion of
administrative acreage data. That acreage information is now
reflected in the October production forecast.
"In the case of the U.S. average yield forecast, there have been
six years since 1975 in which the forecast declined in October and
again in November," said Good. "In those six years, the January
estimate exceeded the November forecast twice and was smaller four
times."
The U.S. soybean crop is now forecast at a record 3.204 billion
bushels, 15 million larger than the October forecast, 141 million
larger than the 2005 crop and 80 million larger than the previous
record crop of 2004. The U.S. average yield is forecast at 43
bushels, equal to the record of last year.
The projection of the domestic crush during the current marketing
year was increased by 5 million bushels, to a total of 1.78 billion.
Year-ending stocks are projected at 565 million bushels, or 18.3
percent of projected consumption.
"Historical relationships between stocks and average farm price
point to a 2006-07 average farm price near $5.45 with a
stocks-to-use ratio of 18.3 percent," said Good. "The USDA projects
the average price in a range of $5.40 to $6.40, and closing futures
prices on Nov. 10 implied an average farm price near $6.25.
"The relatively high price of soybeans is most likely explained
by the need for the soybean market to protect its 2007 acreage turf
as corn prices move higher. In addition, soybean meal prices are
supported by higher corn prices, and soybean oil prices are being
supported by expectations of rapidly expanding biodiesel
production."
[University
of Illinois College of Agricultural, Consumer and Environmental
Sciences news release]
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