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"Significant price volatility, particularly for corn, will be
associated with the planting and growing season," said Darrel
Good, reacting to USDA reports released on Jan. 12 which were
generally supportive for corn and soybean prices. "The biggest
surprise in the reports, however, was the estimated size of the
2006 U.S. corn crop," he noted. "At 10.535 billion bushels, the
2006 crop was 210 million bushels smaller than the September
forecast. The U.S. average yield was estimated at 149.1 bushels,
2.1 bushels below the November forecast and 5.6 bushels below
the September forecast.
"The January yield estimate was five bushels or more below
the November forecast in Kansas, Minnesota, Nebraska, South
Dakota, and Wisconsin. The yield estimates were reduced two
bushels in Illinois and Indiana and increased by three bushels
in Iowa."
The November-to-January decline in the U.S. yield estimate
was the second largest in the past 32 years, exceeded only by
the 2.4 bushels reduction for the 1993 crop, he noted. The
estimate of corn acreage harvested for grain in 2006 was reduced
by 400,000 acres. At 70.648 million, harvested acreage was 4.469
million less than harvested in 2005.
The USDA increased the forecast of U.S. corn exports for the
current marketing year by 50 million bushels, to a 17-year high
of 2.250 billion bushels. The increase reflected the strong pace
of sales and shipments to date. The forecast of feed and
residual use was reduced by 75 million bushels, to a three-year
low of 5.975.
"The reduction reflected anticipated cuts in feed use as a
result of higher corn prices," said Good. "The Dec. 1, 2006
stocks estimate of 8.93 billion bushels was 885 million below
the level of stocks a year earlier and implied a year-over-year
reduction of about 2 percent in feed and residual use of corn
during the first quarter of the 2006-07 marketing year."
Year-ending stocks of corn are projected at an 11-year low of
752 million bushels, representing only 6.4 percent of the
projected marketing year consumption of 11.76 billion bushels.
"The marketing year average price received by farmers is
projected in a range of $3 to $3.40, 10 cents above the December
forecast," Good said. "The average price received from September
through December 2006 was likely near $2.70. To average the
midpoint of the USDA's projection for the year, the average
price received from January through August 2007 will have to be
near $3.50."
For soybeans, the January estimate of the size of the 2006
U.S. crop was a record 3.188 billion bushels, but 16 million
below the November forecast. The change reflected a 0.3 bushel
reduction in the yield estimate and an increase of 97,000 in the
estimate of harvested acreage.
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 "Harvested acreage was a record, 74.602 million, 3.351 million
more than in 2005," said Good. "The forecast of 2006-07 marketing
year exports of U.S. soybeans was reduced by 25 million bushels. At
1.12 billion, exports are still expected to be record-large.
"The smaller forecast reflects a slower-than-expected level of
shipments in November and December 2006 and the outlook for a record
harvest in South America. The forecast of the Argentine crop was
increased by 18.5 million bushels for the second consecutive month.
Production in all of South America is forecast at 3.895 billion
bushels, 145 million larger than the 2006 harvest."
Stocks of U.S. soybeans at the end of the current marketing year
are forecast at a record 575 million bushels, 10 million above the
December forecast. The marketing year average price received by
producers is forecast in a range of $5.75 to $6.45, about the same
as forecast last month.
The average price received from September through December 2006
was likely near $5.70. To average $6.10 for the year, the average
price received from January through August 2007 needs to be near
$6.50."
The USDA's Winter Wheat Seedings report revealed a 3.514 million
acre (8.7 percent) increase. The bulk of the increase is in
Arkansas, Kansas, Oklahoma, South Dakota, and Texas, where combined
acreage is up 2.265 million. Seedings are estimated at 970,000 in
Illinois (up 40,000), 410,000 in Indiana (down 60,000), and 870,000
in Ohio (down 120,000). It appears that soft red winter acreage is
down about 140,000 in the eastern Corn Belt, but up 980,000 in the
southeast.
"The sharp reduction in the U.S. stocks of corn occurring this
year, along with the rapid expansion in ethanol production, implies
that U.S. corn production needs to increase sharply in 2007 in order
to prevent prices from going to levels that are even more punitive
to livestock producers," said Good.
"Much of that increase will come from soybeans. Soybean prices
have been following corn prices higher in an attempt to prevent too
large a decline in acreage."
With soybean consumption at the current level of 3.066 billion
bushels per year, and with a 2007 average yield near that of the
past two years, soybean acreage could decline by 10 million in 2007
without bringing 2007-08 marketing year ending stocks under 250
million bushels.
"In addition, if March 2008 soybean futures are maintained at the
current level near $7.70, Brazil will likely make a significant
increase in soybean plantings in the coming year," he said.
[University
of Illinois College of Agricultural, Consumer and Environmental
Sciences news release]
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