 "Some suggest that corn and soybean prices have not been
following fundamentals, but have traded on outside markets like
crude oil," said Darrel Good. "However, energy prices are more
fundamental to crop markets than ever before."Others have
argued that crop prices have been inflated by increased
speculation in the futures market. There is no hard evidence to
support that argument. It is sufficient to say that corn and
soybean markets have plenty of supportive fundamentals on their
own."
Good's comments came as he reviewed corn and soybean prices,
which continue to be supported by a broad range of fundamental
factors. These include strong domestic and export demand and a
fair amount of concern about the potential size of the 2008
crops in the United States.
The Census Bureau reported the domestic soybean crush in
April at 149.2 million bushels, nearly 3 percent larger than the
crush of April 2007.
"Importantly, the estimate of the March crush was revised
higher so that the cumulative crush during the first eight
months of the 2007-08 marketing year exceeds that of a year ago
by 2.7 percent," he said. "Crush during the last four months of
the year needs to exceed year-ago levels by only 0.3 percent to
reach the USDA projection of 1.84 billion bushels for the year.
It appears likely that crush will exceed that projection."
Prospects for domestic feed demand of soybean meal and corn
are bolstered by the sharp recovery in hog prices. Higher cash
and futures prices may slow the rate of liquidation of the herd.
In addition, as of May 1, the number of cattle on feedlots with
a capacity of at least 1,000 head was down only 1 percent from
that of a year earlier.
Placement of broiler eggs and chicks continues at a rapid
pace, with broiler production over the next 10 months expected
to be only 0.5 percent less than during the same time period
last year.
"Feed demand for corn during the summer months, however, may
be tempered by increased wheat feeding," Good said. "The average
bid for harvest-delivered wheat in southern Illinois, for
example, is currently only about 20 cents per bushel above the
current spot cash price of corn."
Domestic demand for corn to produce ethanol also remains
strong as current cash crush margins are solidly in the black.
"Higher ethanol prices and strengthening prices of distillers
grains have offset the higher prices of corn and natural gas,"
he said. "A continuation of relatively high crude oil and
gasoline prices would be supportive of continued strong demand
even with a lower blender tax credit and reduced mandates.
"The current wholesale price of unleaded gasoline along with
a 45-cents-per-gallon blender's tax credit, for example, would
support ethanol prices 20 cents above current plant level
prices. Higher fuel prices might also give a boost to soybean
oil demand for biodiesel production."
That use, he added, has declined sharply since the peak in
August 2007, but the use of other fats and oils for biodiesel
production has increased sharply.
[to top of second column]
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Soybean export demand remains brisk. Cumulative shipments through
May 22 (38 weeks into the marketing year) were only 1 percent less
than the total of a year ago, while the USDA has projected a 2.5
percent decline for the year.
Unshipped sales of as May 15 totaled 136 million bushels,
compared with only 81 million on the same date last year.
"It is also significant that Census Bureau export estimates
through March exceeded the USDA estimates by 30 million bushels," he
noted. "Last year, Census Bureau estimates through March were 30
million less than USDA estimates.
"Through March, then, the Census Bureau showed soybean exports
exceeding those of a year ago by 39 million bushels. Continued
strong demand from China, export interruptions in Argentina and
prospects of only a modest increase in soybean acreage in South
America keep export prospects strong."
The pace of corn export shipments has slowed since mid-April.
Cumulative inspections through May 22 exceeded year-ago levels by 17
percent, in line with the 17.6 percent increase for the year
projected by USDA. Unshipped sales as of May 15 totaled 503 million
bushels, compared with only 381 million bushels a year earlier.
In addition, Census Bureau export estimates through March
exceeded inspections by 49 million bushels, compared with a margin
of 25 million a year ago.
"While sales remain brisk, the pace of exports needs to increase
to reach the USDA projection for the year of 2.5 billion bushels,"
he said.
On the supply side, Good said, the focus will continue to be on
the rate of planting and development of the U.S. crops. More than
half the corn crop in Iowa, Minnesota and Missouri will be planted
after May 10, and more than half of the soybean crop in most Corn
Belt states will be planted after May 20.
"Late planting, slow emergence and slow growth all raise concerns
about yield potential," he said. "In addition, the late maturity of
the soft red winter wheat crop in Illinois, Indiana, Missouri and
Ohio raises questions about the timeliness of soybean planting
following the wheat harvest.
"A late wheat harvest might reduce acreage and/or yield of
double-cropped soybeans in those areas."
[Text from file received
from the University
of Illinois College of Agricultural, Consumer and Environmental
Sciences]
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