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"These factors include the small world
wheat crop of 2003-04, the small 2004 U.S. soybean crop, large
soybean imports by China, a poor end to the 2004 South American
growing season and the expanding domestic consumption of corn," said
Good. "The net result is declining world inventories of grain.
"For the next several months, prospects
for the size of the U.S. corn and soybean crops and world wheat
production will be important price factors."
Last week's USDA "Prospective
Plantings" report provided the first ingredients for anticipating
U.S. crop production in 2004. The report indicated that producers
intend to reduce acreage of wheat and feed grains and increase
acreage of soybeans, rice and cotton. Reductions are also intended
for canola and sunflowers.
"The major surprises in these
intentions include a large increase in soybean acreage, a very small
increase in corn acreage and a decline in total planted acres of
reported crops," said Good. "Intentions for all non-hay crops in
this report were 832,000 acres below last year's plantings."
At 79.004 million acres, corn-planting
intentions are only 268,000 acres more than planted in 2003, well
below the average expectation of an increase of 1.5 million acres.
Most of the planned increase is in the western Corn Belt, although a
modest decline is intended in Nebraska and a modest increase is
expected in Ohio. This planned increase in corn is more than offset
by the 820,000-acre reduction in sorghum planting intentions. In
addition, reductions in combined intentions for barley and oats for
harvest totaled 773,000 acres.
Soybean planting intentions were
reported at a record 75.411 million acres, 2.007 million more than
planted in 2003 and about 1 million more than the average pre-report
guess. Half of the planned increase is in western growing areas,
with the largest increase of 550,000 acres planned in North Dakota.
Acreage in the eastern Corn Belt states is expected to be near that
of last year, with the remaining half of the increase coming in
southern and eastern areas of the United States.
The "Prospective Plantings" report also
revealed producer intentions to reduce durum wheat seedings by
158,000 acres and to reduce seedings of other spring wheat by
507,000 acres.
"Combined with the 1.573-million-acre
reduction in winter wheat seedings, U.S. wheat area looks to be down
by 2.238 million acres," said Good.
Good noted that it is generally believed that the planned increase
in corn acreage is not sufficient to accommodate the expected
increases in consumption of U.S. corn in the 2004-05 marketing year.
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"That increase is
expected to be led by domestic use of corn for ethanol and by
exports, as China reduces the level of exports," said Good. "As a
result, corn prices have moved sharply higher in a late effort to
entice producers to plant more corn and to slow the rate of corn
consumption.
"The market will have
to wait for the USDA's June 30 ‘Acreage’ report to see if producers
responded to this effort. In recent history, June acreage figures
were more than marginally above March intentions only in 2000. Since
the change in farm programs in 1996, the final acreage estimate was
also above March intentions only in 2000."
Good said that corn
yield prospects now become critically important for the corn market.
It is not often that a new record corn yield is required just to
keep pace with expected consumption.
"Prices could move
sharply higher if a growing season problem develops," he said. "Even
with a trend yield in 2004, the average 2004-05 marketing-year price
may well exceed that of 2003-04."
With a significant
rebound in the U.S. average yield in 2004, the planned increase in
soybean acreage is more than sufficient for a rebuilding of U.S.
supplies. However, the market is not in a hurry to assume a high
yield in 2004, given the experience of 2003.
"As a result, a
bizarre sort of bidding war with corn appears to be taking place to
ensure that producers maintain plans to increase soybean acreage,"
said Good.
In addition to U.S.
production prospects, the soybean market has several other factors
to consider over the next few months, including the size of the
South American crop and the pace of domestic soybean meal
consumption.
"The potential for
domestic soybean supplies to be effectively depleted before the new
harvest still looms," said Good. "Will the combination of reduced
exports, South American imports, inventory depletion and early
harvest be sufficient to make supplies last, or will higher prices
be required?"
For wheat, the
potential size of wheat crops outside the United States will be as
important as prospects for the U.S. crop.
"In particular, it will be important
whether or not production rebounds from the very low levels of the
past year in Europe, Russia and the Ukraine, as it has in
Australia," Good said.
[University of Illinois news release]
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