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"For the soybean market, the major task
for the next four months is making small supplies last until the new
harvest," said Darrel Good. "For corn, the major issue is the size
of the 2004 crop.
"For both corn and soybeans, attractive
pricing opportunities for the 2004 crop have unfolded and may
persist well into the growing season."
Good's comments came as he reviewed the
outlook for the corn and soybean markets.
The USDA now projects 2003-04
marketing-year soybean exports at 900 million bushels, nearly 14
percent less than shipments of a year ago. The domestic crush is
projected at 1.475 billion bushels, nearly 9 percent less than last
year's crush. The reduction is being forced by the small crop of
2003.
"Year-ending stocks are expected to be
at a bare-bones level of 115 million bushels," said Good. "It now
appears that soybean exports are being reduced in line with USDA
projections. As of April 8 -- 32 weeks into the marketing year --
the USDA's export inspections report indicated that cumulative
shipments were down 12 percent from the shipments during the same
period last year."
The "Export Sales" reports through
April 1 showed a decline of about 9 percent. At 70 million bushels,
unshipped soybean export sales as of April 1 were 38 million
bushels, or 35 percent, smaller than unshipped sales of a year ago.
The decline in cumulative shipments plus outstanding sales is in
line with the USDA projection for the year.
"While the South American harvest will
be significantly smaller than previously expected, it will be
adequate to supply world needs over the next several months,
allowing U.S. exports to decline," said Good.
Through the first half of the 2003-04
marketing year, the cumulative domestic crush was 3 million bushels
more than the crush during the same period last year. To meet the
USDA projection for the year, crush during the last half of the year
needs to be 143 million bushels, or 18.5 percent, less than during
the last half of the 2002-03 marketing year.
"The nearly 24 million bushels per
month reduction seems like an impossible task. How will it happen?"
Good asked.
"Three factors will combine to stretch
available domestic soybean supplies. First, use of U.S. soybean oil
and meal will have to decline, with most of that adjustment
occurring in the export market. For domestic uses, an interesting
question is whether there has been some accumulation of oil and meal
inventories by end users. The monthly Census Bureau report only
reports meal and oil inventories at mills. Changes in inventories at
other locations are not measured, resulting in some 'noise' in the
monthly estimates of disappearances as non-mill stocks fluctuate up
and down."
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Good added that anecdotal evidence
suggests that livestock producers have increased stocks of soybean
meal. To the degree that is the case, meal use will not have to
decline as rapidly as the decline in crush.
The second factor involves imports of
soybeans, soybean meal and soybean oil, which can help alleviate the
shortage in domestic supplies this summer.
"While the USDA has projected a
significant increase -- percentagewise -- in imports of soybeans and
products this year, the absolute magnitudes are still small," said
Good. "Larger imports can occur if required by the market."
The third factor is the potential for
early harvest of a portion of the 2004 U.S. soybean crop.
"Harvest typically occurs first in the
Delta states," said Good. "Intended soybean acreage in those areas
is nearly 500,000 acres larger than acreage of a year ago. There are
some indications that actual acreage could exceed those intentions
as producers switch away from intended cotton acreage."
In some years, harvest occurs
relatively early in the upper Plains states. Intended acreage in
North Dakota exceeds last year's area by 550,000 acres. A relatively
early harvest might allow Sept. 1 stocks of old crop soybeans to be
reduced below the 115 million bushel level currently projected by
the USDA.
"The extent to which prices must remain
high or go even higher to match supplies and use is not known, but
it may be less than suggested by the assumed need to reduce the
domestic crush by 18 percent," said Good.
For the corn market, a small
year-ending inventory and continued large use into the 2004-05
marketing year are assumed.
"The question seems to be whether or
not the 2004 U.S. crop will be large enough to supply the increasing
domestic and world appetite for corn," said Good. "The size of the
U.S. crop required to meet expected needs will be influenced by the
size of grain crops in the rest of the world and by the magnitude of
corn exports from other areas.
"It appears that there will be less
competition from China during the upcoming marketing year but more
competition from the Southern Hemisphere in the spring-summer of
2005. In addition, a significant rebound in world wheat production
would provide more competition for U.S. corn in the world market."
For now, the market believes that the
U.S. corn yield will have to be at least at trend value of about 140
bushels to provide an adequate crop in 2004.
"Planting
progress, weather forecast and early crop condition ratings will be
watched closely," Good said. "Price swings could be quite large as
the planting and growing season progresses."
[University
of Illinois news release]
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