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"That may not be the case this year, as demand considerations
have become extremely important," said Darrel Good. "Even with
expectations of a large corn crop, for example, December 2006
corn futures have rallied from the contract low of $2.33.5
reached following the August production forecast to settle at
$2.71 on Oct. 6 and trade above $2.80 on Oct. 9. "With
widespread agreement that the October soybean forecast will be
larger than the September forecast, November 2006 futures
increased almost 25 cents since the end of September. Prices are
being influenced by strong export sales for both commodities and
prospects for a large increase in corn used for ethanol
production and a more rapid expansion of soybean oil used for
biodiesel."
Some expect, Good added, that thee positive demand
developments will result in larger consumption than forecast by
the USDA in September.
"To a large extent, the market is suggesting that the crop
size is not all that important this year, particularly for
corn," he said. "A marketing year low in the cash price of corn
likely occurred early last month, and prices now are at levels
previously not expected until at least the end of the year.
"The cash price of soybeans is also well above the low
established in early September, but there is less confidence
that the low price for the year has been established."
Good's comments came as he anticipated the USDA's upcoming
October Crop Production and the World Agricultural Supply and
Demand Estimates reports, both to be released on Oct. 12.
For corn and soybeans, the October production forecast has
traditionally been viewed as important because of its historical
accuracy. Over the past 36 years, the average difference between
the October production forecast and the production estimate
released in January following harvest was only 2.4 percent for
both crops.
"This compares to a difference of more than 5 percent for the
August forecast and more than 4 percent for the September
forecast," said Good. "Over the past five years, the average
difference between the October forecast and the January estimate
was only 1.2 percent for corn and 2.1 percent for soybeans.
"The October report is generally more accurate than the
August and September report since some harvest results are
reflected in the producer survey and more fruit count and weight
data are available in objective yield surveys."
Good said that one reason for the improved accuracy in the
October estimates in recent years is that USDA's National
Agricultural Statistics Service is able to review the Farm
Service Agency's certified acreage information earlier.
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"That information is now available to update planted and
harvested acreage estimates in October rather than in January,"
said Good. "Because of unusually dry weather, NASS also asked
producers in Alabama, Georgia and South Dakota who were surveyed
for the October report this year to update their estimate of
harvested acreage."This year, private sources are almost unanimous in expecting a
larger production forecast for soybeans in October. That expectation
is based on ideas that the yield forecast will be higher than in
September.
"Crop conditions ratings showing 62 percent of the crop in good
or excellent condition as the growing season ended points to an
average U.S. yield of 42.8 bushels, a bushel above the September
forecast," said Good. "Yield at that level would result in a
forecast of 3.164 billion bushels, 71.5 million above the September
forecast, if the estimate of harvested acreage is not changed.
"Private sources expect the forecast to be even larger, with the
average yield likely exceeding the record 43 bushels of last year."
For corn, there is more diversity of opinion about the October
forecast, with most observers apparently expecting only a relatively
small change from the September forecast of 11.114 billion bushels,
reflecting an average yield of 154.7 bushels.
"Crop condition ratings as the growing season ended showed 61
percent of the crop in good or excellent condition," said Good.
"Based on relationships between trend-adjusted yield and the
percentage of the crop rated good or excellent at the end of the
season since 1986, crop ratings this year point to an average yield
of only 148.3 bushels.
"However, the average yield has exceeded that forecast by crop
conditions in each of the past seven years. The difference ranged
from 0.4 bushels to 7.4 bushels and averaged 3.3 bushels.
Expectations about the October yield forecast also vary due to the
wide range of yield results being reported."
The market generally does a good job of anticipating the October
production forecasts for corn and soybeans. The correlation between
the expected change in the production forecast and the actual change
in the NASS forecast in October since 1970 is 0.79 for corn and 0.73
for soybeans, with 1.0 reflecting perfect correlation in direction
and magnitude of change.
"Even so, surprises in October are not uncommon," Good noted.
"The availability of FSA acreage data for the October report
increases the opportunities for surprises.
"For example, a 1 percent change in the harvested acreage
estimate for corn could change the production forecast by about 110
million bushels and the projection of year-ending stocks by 9
percent."
[University
of Illinois College of Agricultural, Consumer and Environmental
Sciences news release]
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