 "Tight world stock will continue to magnify the impact of
production uncertainty into the foreseeable future," said Darrel
Good. "Volatility in energy and currency markets will also add
to the volatility of crop prices. Risk has increased
significantly."Good's comments came as he reviewed the crop
markets. With the U.S. corn and soybean harvest about complete
and the size of those crops pretty well known, focus is now on a
wide array of other factors, including U.S. winter wheat
conditions, crop developments in the rest of the world, U.S.
acreage prospects in 2008, and domestic and export demand.
On the supply side, Good noted there is growing concern about
dry conditions in hard red winter wheat areas in the United
States. As of Nov. 11, the USDA rated only 49 percent of the
entire winter wheat crop in good or excellent condition,
compared with 53 percent the previous week and 59 percent last
year.
"A further deterioration in conditions was expected to be
reported on Nov. 19," he said. "In addition to the U.S. crop,
there are also concerns about planting delays in India due to
dryness and some uncertainty about the extent of frost damage to
the crop in Buenos Aires, Argentina.
"Generally, favorable conditions persist for much of Europe
and China."
For corn and soybean production, most of the focus is on
South America. The USDA has forecast the 2008 harvested area of
corn in Argentina at 7.4 million acres, with production
potential of just under 900 million bushels, equal to the size
of the 2007 harvest.
"There is some uncertainty about frost damage to the crop in
Buenos Aires, but the market appears to think the damage was
minor," said Good. "Upcoming precipitation appears to be
favorable for crop development.
"Harvest area in Brazil is forecast at just less than 35
million acres, with production potential of 1.97 billion
bushels, slightly less than harvested in 2007. Growing
conditions have been less than ideal, with some dryness in the
north and excessive precipitation in the south, but production
prospects remain generally intact."
For soybeans, the USDA has forecast the 2009 harvested area
in Argentina at 41.5 million acres, 5.7 percent more than
harvested in 2007.
"Production prospects are projected at 1.73 billion bushels,
marginally below the size of the 2007 harvest," he noted.
"Acreage in Brazil is projected at 54.3 million, 6.3 percent
more than harvested in 2007. Production is forecast at 2.28
billion bushels, 5.1 percent larger than the 2007 crop.
"At that projected level, the size of the 2008 South American
soybean crop would not be large enough to offset the reduction
in the size of the 2007 U.S. harvest. The weather events
described above will keep production prospects in limbo."
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An increase in soybean acreage in the United States is being
anticipated, he noted. Current price relationships, however, suggest
that corn production remains very competitive to soybeans in many
areas of the country. The size of the needed increase in acreage
will not be known for several more weeks.
"While producers tend to make acreage plans early, some
flexibility will be maintained into planting time," he said. "In
2007, for example, corn plantings exceeded March intentions by
nearly 3.2 million acres, and soybean plantings were nearly 3.5
million below March intentions."
On the demand side, domestic corn and soybean demand appears to
be improving. While the number of cattle in feedlots with capacity
of 1,000 head or more was less than that of a year ago on Nov. 1,
placements into feedlots during October were 12 percent larger than
placements in October 2006. Hog slaughter is currently record large,
and broiler production is expanding more rapidly than would have
been anticipated with high feed costs.
"These developments should support feed consumption at very high
levels," said Good. "The continuation of high crude oil prices,
rising gasoline prices and some recovery in ethanol prices bode well
for corn demand for ethanol production and soybean oil demand for
biodiesel production.
"After reaching a low of $1.49 per gallon in late September, the
average price of ethanol at Iowa plants was reported at $1.77 on
Nov. 16. The calculated crush margin at those plants dropped to
$1.72 per bushel on Sept. 28 but recovered to $2.60 per bushel on
Nov. 16."
On the export side, focus continues to be on Chinese demand for
soybeans and soybean oil and the potential for China to import corn.
"Modest-sized crops along with surging livestock demand have
resulted in concerns about food price inflation in China," said
Good. "With a relatively low-valued U.S. dollar, China may address
those concerns with larger imports of soybeans and soybean oil and
reduced exports of corn.
"The questions tend to center around how much of the import
buying has already been done."
[Text from file received
from the University
of Illinois College of Agricultural, Consumer and Environmental
Sciences]
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