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"Soybean prices declined sharply following the USDA's Aug. 11
Crop Production report, even though the soybean production
forecast was nearly 100 million bushels less than expected,"
said Darrel Good. "The decline, at least in part, reflects
expectations of a larger production forecast on Sept. 12."
November 2006 soybean futures traded between $5.90 and $6.40
from mid-January 2006 through Aug. 10. That contract settled at
$5.515 on Sept. 1, just 9.5 cents above the contract low
established in February 2005. The average spot cash price of
soybeans in central Illinois traded to a 2005-06 marketing year
low of $5.065 on Aug. 28.
"That was 99 cents below the high established on Jan. 4 and
85 cents below the 2005 harvest low," said Good. "Prices have
declined even though consumption has remained large.
"Consumption of soybeans during the 2005-06 marketing year
ended on Aug. 31 likely exceeded the most recent USDA projection
of 2.832 billion bushels. The August crush needed to total only
128.3 million bushels to reach the USDA's projection of 1.725
billion bushels for the year. The crush in August 2005 was 130.3
million."
Good noted that Census Bureau export estimates are available
only through June 2006, but USDA export estimates for July and
August suggest that exports for the year reached 935 million
bushels, 5 million above the current USDA projection. Seed, feed
and residual use for the year will not be known until the
release of the Sept. 1 Grain Stocks report on Sept. 29.
"Improving crop conditions have offset the positive impact of
the high rate of consumption," he noted. "The percentage of the
U.S. soybean crop rated in good or excellent condition increased
for three consecutive weeks ending on Aug. 27. As of that date,
59 percent of the crop was rated in good or excellent condition,
well above the long-term average for that date and six
percentage points above the rating of a year earlier."
The states with the highest percentage of crop rated good or
excellent were Kentucky, 80 percent; Indiana, 73 percent;
Illinois, 70 percent; and Iowa, 69 percent.
"The improved crop ratings suggest that the 2006 U.S. average
soybean yield could exceed the August forecast of 39.6 bushels,"
Good said. "Historically, the percentage of the crop rated good
or excellent at the end of the growing season has explained 85
percent of the variation in the annual trend-adjusted national
average yield of soybeans.
"Since 1986, the actual average yield was within 1.1 bushels
of the predicted yield in every year except two. The actual
yield was 2.77 bushels lower than predicted by crop ratings in
2003 and 1.99 bushels higher than predicted in 2005. In 2003,
the low yield was generally explained by the widespread presence
of soybean aphids."
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 Good added that good vegetative appearance of the soybean crop
does not always get translated into pods and seeds.
"In addition, we don't know what crop condition ratings will be
at the end of the season," he said. "If 59 percent of the crop is
rated in good or excellent condition at the end of the season,
historical relationships would suggest that the most likely average
yield would be 42.2 bushels per acre, with a high degree of
confidence that the yield would be within one bushel of that
forecast.
"If harvested acreage is near the 73.935 million acres projected
by the USDA, an average yield of 42.2 bushels would produce a crop
of 3.12 billion bushels, 192 million larger than the USDA August
forecast and very near the record crop of 2004."
Assuming that Sept. 1 U.S. soybean inventories will total 505
million bushels (10 million less than currently projected by USDA)
and allowing for use during the 2006-07 marketing year to exceed the
current projection of 2.996 billion bushels by 20 million bushels,
stocks on Sept. 1, 2007, could exceed 600 million bushels with a
yield of 42.2 bushels.
"That level of stocks would point to a 2006-07 marketing year
average farm price of about $5.35," said Good. "At the close of
trade on Sept. 1, the futures market reflected an average farm price
of about $5.50 for the year ahead. On the surface, then, it appears
that the market has already factored in a much larger soybean crop
than forecast in August."
Additional downside pressure is possible if the September
production forecast is near 3.1 billion bushels, he added.
"With harvest bids near or below the loan rate, there is no
incentive to price additional amounts of the 2006 crop for harvest
delivery, unless further price declines are expected through the
harvest period," Good said.
"Bids for post-harvest delivery generally exceed the loan rate,
so there may be opportunity to collect loan deficiency payments on
the stored crop and price at least a portion of that crop for later
delivery."
[University
of Illinois College of Agricultural, Consumer and Environmental
Sciences news release]
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