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"Since mid-September, soybean prices
have increased a little more rapidly than product prices, soybean
oil prices have been stronger than meal prices, basis in many areas
has strengthened, and the inverse in the futures market -- beyond
March 2004 -- has increased," said Darrel Good.
"In the short crop years of 1980, 1983
and 1988, the highest cash price of the marketing year occurred in
September twice and November once. However, in the yield-declining
years of 1993, 1995 and 1999, the highest cash price occurred well
after harvest -- May once and July twice. The magnitude of the
production decline this year, as revealed in the October and
November USDA reports, should provide more insight on whether or not
to expect an early price peak."
Good's comments came as he reviewed
soybean prices. November 2003 soybean futures were trading near
$5.20 before the USDA's August production forecast of 2.862 billion
bushels, moved to near $6 in front of the September forecast of
2.643 billion bushels and then to $7 last week.
"The higher soybean prices since
mid-September were fueled mostly by reports of disappointing
yields," said Good. "In addition, a rapid pace of export sales and
some early talk of dry weather in parts of South America contributed
to the price rally."
Reports of very low yields from
early-maturing soybeans have been replaced by some reports of more
normal yields in later-maturing soybeans. Eastern and southern areas
may have near-normal yields and western areas are likely to have
below-normal yields, but that is in line with the USDA's September
forecast.
"Does the market now accurately reflect
production potential?" said Good. "Or has there been a significant
under- or over-reaction to early yield reports? The USDA's October
production forecast has the potential to move prices significantly
in either direction."
Good noted that in recent years, there
have been some large differences between the USDA's September and
October soybean production forecasts. Large declines in October (3
to 5 percent) occurred in 1995, 1998, 1999 and 2000. The declines in
1999 and 2000 followed declines in September, while the smaller
October forecasts in 1995 and 1998 followed larger forecasts in
September.
"This year, the market obviously
expects a smaller forecast in October," said Good. "Seemingly, the
only question to be answered is how much lower?"
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Private estimates released last week
reflected declines of 25 to 80 million bushels. Anticipating the
change in the USDA production forecast this year is complicated by
the announcement that the USDA will use administrative data
(primarily from the Farm Services Administration) to adjust acreage
in the October report.
"This data has traditionally not been
available until December," said Good. "In addition, USDA will ask
producers in the Missouri survey to update harvested acreage
estimates.
"The worries about U.S. crop size have
been compounded a bit by the rapid pace of export sales. As of Sept.
25, the USDA reported that 373 million bushels of U.S. soybeans had
been exported or sold for export during the 2003-04 marketing year."
Commitments were 35 percent larger than
on the same date last year, while the USDA has projected a 10
percent drop in exports for the year. Both the European Union and
China have purchased more U.S. soybeans than at this time last year.
"The current pace of export sales --
seasonally adjusted -- cannot be maintained, even with further
declines in the size of the domestic crush," said Good. "Current
prices, along with prospects for a large South American harvest in
2004, may be high enough to trim the rate of export sales. However,
the magnitude of the needed cut in exports is still not known."
After the U.S. harvest is completed and
the forecast size of the crop is updated in November, attention will
focus more intently on 2004 South American production prospects. The
USDA has forecast a 7 percent increase in South American soybean
acreage and a 5.8 percent increase in production. The recent soybean
price rally may lead to a larger increase in area, but the focus
will be on yield prospects.
Average yields in Brazil and Argentina
have been trending higher, but year-over-year declines have
occurred. Over the past 14 years, the average yield in Brazil was
below that of the previous year four times. The declines ranged from
0.4 percent to 8 percent. Year-over-year declines in Argentina
occurred in six of the past 14 years. The declines ranged from 0.9
percent to 13 percent.
"By
comparison over the past 14 years, the average U.S. yield was lower
than the previous year four times, in a range of 4 to 15 percent,"
said Good. "The September forecast for 2003 was for a 2.7 percent
decline. In general, it appears that yield declines in poor years
are less severe in South America, particularly in Brazil, than in
the United States."
[University
of Illinois news release]
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