"As concluded last week, the markets
appear to be expecting the USDA's Aug. 12 production forecast to be
near 10.8 billion bushels for corn and in excess of 3 billion
bushels for soybeans," said Darrel Good. "Forecasts from the private
sector are in that range for corn but a bit lower for soybeans."
Good said it now appears that even with
a very large crop this year, U.S. inventories of corn will not
increase to a burdensome level. The situation for soybeans, he
added, is a bit more complicated.
Last week, December 2004 corn futures
managed to trade 12 cents above the contract low of $2.25,
suggesting that the potentially large crop has been fully reflected
in the sharp price decline over the past several weeks. There are
also some late-season crop concerns that could prevent yields in
some areas from reaching the lofty levels expected even a week ago.
"It is not unusual for corn prices to
reach a low just before or during the harvest period in years with
large crops," he said. "Prices appear to be following that pattern
this year, with basis behavior likely to determine the timing of the
seasonal low in cash prices."
Good said that once the market is
satisfied that it has accurately reflected crop size, focus will
quickly turn to the pace of consumption. Domestic use of corn is
expected to continue to increase, driven primarily by increased
production of ethanol. Feed and residual use of corn should be
supported by profitability in the livestock sector and expansion in
broiler production. Current conditions suggest that total domestic
consumption of corn could increase by more than 125 million bushels
during the 2004-05 marketing year.
"There is also optimism about prospects
for U.S. corn exports during the year ahead, even though exports
this summer have been disappointing," said Good. "Relatively low
corn prices and reduced competition from Chinese corn exports could
fuel an increase of 150 million bushels in U.S. corn exports for the
"Early season export sales are not a
good predictor of exports for the year, but recent price declines
have apparently triggered some large sales of corn for delivery
during the 2004-05 marketing year. As of July 29, the USDA reported
that 130 million bushels of corn had been sold for export during the
upcoming marketing year. New crop sales a year ago totaled 103
million bushels. The year-over-year increase is to unknown
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Noting that it now appears that U.S.
inventories of corn will not increase to a burdensome level, Good
said that with a sound demand base, production will need to be large
again in 2005 and beyond.
"This scenario suggests that corn
prices could recover significantly during the 2004-05 marketing
year, particularly during the next production cycle, beginning in
the spring of 2005," said Good. "This would be consistent with
historical patterns in years with large crops. In central Illinois,
for example, harvest lows in the cash price have often been followed
by a spring-summer high. That seasonal increase has not been less
than 45 cents and typically exceeds 60 cents."
However, the situation for soybeans is
a bit more complicated than for corn.
"While the market has clearly factored
in a large crop, prospects for use during the 2004-05 marketing year
are clouded," he said. "Domestic use of soybean meal and oil should
rebound from this year's decline due to more abundant supplies,
lower prices and livestock profitability.
"Exports of soybeans and soybean
products will be strongly influenced by the size of the soybean
crops in South America in 2005 and by the purchasing decisions of
As of July 29, the USDA reported U.S.
soybean export sales for the 2004-05 marketing year at 153 million
bushels, compared with new sales of 218 million bushels at the same
time last year. China has purchased 76 million bushels for delivery
next year but has not made any new purchases since January.
The South American soybean planting
season is approaching, with expectations of expanding area in
Brazil. A return to more normal yields in 2005 would result in a
very large crop and provide additional competition for U.S. soybean
and soybean product exports.
"Soybean prices have often demonstrated
the same price pattern as corn in large crop years, with harvest
time lows and spring-summer highs," said Good. "The recovery in
central Illinois cash prices under that scenario has not been less
than 60 cents and typically exceeds $1.
question is whether prices will actually establish a marketing-year
low in the fall of the year. There is some chance that prices will
find additional pressure later in the year if a large South American
crop actually materializes."
of Illinois news release]