|
"Increasingly, the soybean market is
developing a 'short-crop' pattern, with prices moving higher, basis
strengthening and inverses in the futures market growing into the
harvest period," said Darrel Good. "Historically, short-crop years
have produced some of the better pricing opportunities near harvest
time."
Good's comments came as he reviewed
recent actions in the soybean market and examined "three important
fundamental factors" affecting the market.
November 2003 soybean futures traded to
about $5.10 in late July as the market reflected expectations of a
record U.S. soybean crop near three billion bushels. Since then, the
price of that contract has increased sharply, reaching about $6.48
in early trading on Sept. 22. The price rally has been in response
to lower production expectations.
"The September USDA crop production
report forecast the 2003 harvest at 2.643 billion bushels, the
smallest since 1996," said Good. "Early yield reports have generally
been on the low side, creating expectations of a lower production
forecast in October. November futures have established the highest
contract high price since the 1999 contract reached a high of $6.80.
"With U.S. soybean supplies at the
lowest level in seven years, the market has become pretty dicey.
Prices over the next few months will reflect three important
fundamental factors."
First, and of immediate importance,
among the factors is the actual size of the 2003 crop.
"Given the nature of the 2003 growing
season, it is not surprising that yields from early maturing
varieties are low," said Good. "The question is, how much did late
August rains in the eastern and southern growing areas benefit
later-maturing varieties? Opinions differ widely, but it would not
be surprising to see near-normal yields from those varieties in
eastern growing areas.
"Many western and northern growing
areas did not receive as much late-season rainfall, so that yield
prospects there are lower for the later-maturing varieties. Only
time will tell if the USDA's September report captured actual yield
prospects."
Good added that, historically, there
has been no correlation between production forecast changes in
September and changes in October. On average since 1970, the crop
forecast in September has differed from the estimate in January
following harvest by 4 percent. The "error" has ranged from near
zero to 9.5 percent.
[to top of second column
in this article]
 |
The second fundamental factor is the
rate of consumption of the 2003 U.S. crop.
"If the crop is near 2.64 billion
bushels and the minimum year-ending stocks level is about 5 percent
of consumption, use during the 2003-04 marketing year would be
limited to about 2.654 billion bushels," said Good. "That would be
about 170 million bushels less than consumed during the 2003-03
marketing year -- after the 2002-03 consumption estimate is
corrected for the apparent underestimate of the size of the 2002
crop.
"The USDA has projected a
60-million-bushel reduction in the domestic crush and a
100-million-bushel reduction in U.S. soybean exports. The question
is, when will the pace of consumption begin to fall in line with
available supplies?"
Soybean exports during the first 2.5
weeks of the 2003-04 marketing year were about four million less
than during the same period last year. However, unshipped sales as
of Sept. 11 totaled 311 million bushels, compared with 228 million
on the same date last year. All major customers except Mexico have
booked more soybeans than at this time last year. The rapid pace of
export sales to date magnifies the significance of a smaller crop.
The third fundamental factor, very much
related to the second factor, is the potential size of the 2004
South American soybean crop.
"The size of that crop will have an
impact on the demand for U.S. soybeans and soybean products," said
Good. "In its September report, the USDA forecast an 8.7 percent
increase in soybean area in Brazil, a 4.8 percent increase in area
in Argentina and a 6.9 percent increase in Paraguay. Combined area
in those three countries is expected to increase by 7.1 percent.
"For the past two years, soybean area
in Brazil has expanded by 17.4 percent and 12.5 percent,
respectively. Area in Argentina increased by 9.6 percent and 10.5
percent, respectively. The recent increase in soybean prices may
encourage a larger-than-forecast increase this year, as additional
acreage is shifted from other crops to soybeans."
The question then is, what will the
average South American soybean yield be in 2004?
"The average
was record large in 2003, with new records established in Brazil and
Paraguay and the 1998 record equaled in Argentina," said Good. "The
USDA has forecast a 1 percent decline in the average South American
yield in 2004. Production there is forecast at 3.57 billion bushels,
nearly 200 million bushels larger than the 2003 harvest. An increase
of that size would offset the smaller crop in the United States."
[University of Illinois news
release] |
