"That concern is reinforced by the sharp decline in stock prices
and underlying economic indicators such as unemployment rates
and housing starts," said Darrel Good. "Prospects of an economic
slowdown threaten the robust domestic and export demand for U.S.
agricultural commodities enjoyed over the past two years.
widespread economic slowdown could result in weaker demand for
meat and for livestock feed. In addition, an economic slowdown
might contribute to a weaker demand for crude oil and further
declines in the prices of unleaded gasoline. Lower gasoline
prices imply lower ethanol prices, which imply lower break-even
corn prices for ethanol producers."
Good's comments came as he reviewed corn and soybean prices,
which have dropped sharply over the past two weeks, continuing
the slide from the early summer peaks. The decline in December
2008 corn futures now exceeds $3.60, and the drop in November
2008 soybean futures is nearly $7.
"Some of the recent decline reflects the larger supplies
revealed in the USDA's September Grain Stocks report," he said.
"That report revealed Sept. 1 inventories of soybeans of 205
million bushels. That is about 55 million more than expected
after the release of the Census Bureau estimate showing August
2008 crush about 15 million bushels lower than expected."
The year-ending inventory resulted in a 91-million-bushel
increase in the estimated size of the 2007 crop. The increase
reflected more acres and higher yields than earlier estimated.
It has been clear since January 2008 that the size of the crop
had been underestimated, as "residual" use of soybeans revealed
in the quarterly stock estimates has been extremely small, he
"It was generally believed that the crop estimate would be
increased enough to bring residual use up to a normal level," he
said. "The large year-ending stocks were a definite surprise."
Sept. 1 inventories of corn were estimated at 1.624 billion
bushels, 48 million bushels larger than projected in USDA's
September supply-and-demand report. Summer corn feeding may have
been less than expected due to feeding of low-priced wheat.
Supply-side pressures to prices have been increased by larger
corn and soybean production estimates from some private
forecasters and an accelerating pace of harvest, in addition to
the larger year-ending stocks. The USDA will release new
production forecasts on Oct. 10.
"While supply issues are at play, much of the recent decline
in prices reflects concerns about the current and future demand
for corn and soybeans," said Good. "The current pace of exports
and export sales of corn, for example, is especially slow.
[to top of second column]
"The USDA projects a 17.5 percent year-over-year decline in exports,
but current export commitments are 37 percent less than those of a
year ago. The pace of soybean export commitments exceeds that of a
year ago by 4 percent, even though USDA projects a 13.4 percent
decline for the year.
"The pace of new sales, however, has declined, relative to that
of a year ago, every week since the middle of August. The
smaller-than-expected domestic soybean crush in August also suggests
that demand for soybean meal is softening."
Even with the legitimate concerns about demand, prices may well
get overdone on the low side as traders adjust to the new
developments. Just as prices went to a level that could not be
sustained with fears of crop loss this spring and summer, prices may
now go too low, Good noted.
"The problem, of course, is that the extent and magnitude of any
economic slowdown and demand weakness for agricultural commodities
is not known," he said. "The overreaction of prices to the high side
this spring was confirmed when weather patterns changed and the
extent of crop losses became clearer. That happened in a relatively
short period of time.
"The U.S. and world economic situation may take much longer to
Current corn and soybean prices project to very tight margins for
producers for the 2009 crop, particularly for those with high land
"Prices are not likely high enough to generate any increase in
acreage in 2009, but if demand weakens sufficiently, an increase may
not be needed," said Good. "For the 2008 crop, the lower prices now
being experienced may be partially offset by insurance payments,
particularly for soybeans, for those who have revenue insurance
"For those who decide to hold inventory in anticipation of an
eventual price recovery, the Commodity Credit Corporation (CCC) loan
program can be a source of some cash flow."
[Text from file received
from the University
of Illinois College of Agricultural, Consumer and Environmental