 "The flurry of USDA reports released on Jan. 11 certainly
contained no indications of bearish developments," said Darrel
Good. "For corn, the USDA's final estimate of the size of the
2007 U.S. crop came in at 13.074 billion bushels, 94 million
less than the November forecast. Harvested acreage was slightly
higher than the November forecast, but the average yield
estimate, at 151.1 bushels, was 1.9 bushels below the November
forecast."If there is a threat to high crop prices, it may
eventually come in the form of some weakness in the U.S. and
world economies. For now, market fundamentals remain strong."
Good's comments came as he reviewed the course of corn and
soybean prices, which have moved steadily and sharply higher
since harvest of the 2007 crops. The average spot cash price of
corn in central Illinois reached a high of $4.61 and soybean
prices reached a high of $12.33 on Friday. December 2008 corn
futures traded to $5.13 and November 2008 soybean futures
reached a high of $12.45 the same day.
"High prices have resulted from a combination of demand and
supply factors," said Good. "A continuation of high crude oil
prices along with a larger biofuels mandate in the new energy
bill support prospects for increased ethanol production.
Expanding hog numbers in the United States has kept feed demand
strong.
"A short world wheat crop, a weak U.S. dollar and concerns
about food price inflation have kept export demand for U.S. corn
and soybeans very strong. On again, off again concerns about the
wheat crop in the United States, India and Pakistan, and
fluctuating weather conditions in South America have also been
generally supportive for prices. In addition, there is general
agreement that the United States needs to expand soybean acreage
and at least maintain corn acreage in 2008."
Dec. 1, 2007, stocks of corn were estimated at 10.3 billion
bushels, 1.33 billion larger than inventories of a year ago but
smaller than expected. The smaller-than-expected inventories
suggest that feed and residual use of corn was record large in
the first quarter of the 2007-08 marketing year and about 9
percent larger than use of a year earlier.
For the year, the USDA increased the forecast of feed and
residual use of corn by 300 million bushels, to 5.95 billion.
Year-ending stocks are projected at only 1.438 billion bushels,
359 million less than projected last month.
"Corn exports continue at a record pace, with the Census
Bureau estimate of exports during the first quarter of the
marketing year coming in at 695 million bushels, 100 million
larger than shipments of the previous year and 45 million larger
than reported by the USDA during the quarter," said Good. "With
large unshipped sales on the books, exports may exceed the
USDA's projection of 2.45 billion bushels for the year, further
reducing year-ending stocks."
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For soybeans, the final 2007 U.S. production estimate of 2.585
billion bushels, reflecting an average yield of 41.2 bushels per
acre, was essentially unchanged from the November forecast -- down 9
million bushels. The projection of use for the year was unchanged,
with year-ending stocks now forecast at a meager 175 million
bushels.
Dec. 1, 2007, stocks of 2.329 billion bushels were larger than
expected and imply seed, feed and residual use of soybeans during
the first quarter of the year of only 38 million bushels, compared
with 60 million to 105 million in recent years.
"On the surface, this small disappearance suggests the 2007 crop
may have been underestimated, but quarterly disappearance varies
enough so that conclusion is likely premature," he said.
Estimates from the Census Bureau indicate that the use of soybean
oil for biodiesel production has slowed dramatically since August,
raising a bit of a caution flag. However, the USDA kept its forecast
of soybean oil use for biodiesel for the marketing year unchanged at
3.8 billion pounds, about 1 billion more than used last year.
The USDA also lowered the forecast of the 2008 Brazilian soybean
crop by about 55 million bushels, reflecting a slight reduction in
the forecast of harvested acreage. The 2008 South American crop is
forecast at 4.3 billion bushels, only 95 million larger than the
2007 harvest.
"The new projections of 2007-08 marketing year use and
year-ending stocks of both corn and soybeans imply that very large
crops are needed in 2008," said Good. "Many have projected a sharp
decline in corn acreage in 2008, but clearly the market cannot allow
that to happen.
"In addition, an increase in soybean acreage may be needed. The
USDA indicated that winter wheat seedings are up 1.6 million acres
from seedings of a year ago. That is a smaller increase than
expected and opens the door for more acres of spring crops than
anticipated."
Still, Good added, the difference is a small fraction of the
increase in combined corn and soybean acreage needed in 2008.
"It is hard to overemphasize the importance of 2008
growing-season weather," he said. "A legitimate threat to average
yields could send prices much higher. In any event, strong demand,
low stocks and high prices will fuel the debate about releasing
Conservation Reserve acreage into crop production."
[Text from file received
from the University
of Illinois College of Agricultural, Consumer and Environmental
Sciences]
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