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"Part of the production puzzle was
solved with last week's USDA acreage report," said Darrel Good.
"Planted acreage of corn is estimated at 80.968 million acres, 2.232
million more than planted in 2003 and 1.964 million more than
indicated in the March survey. The year-over-year increase in
acreage has occurred primarily in Illinois, Iowa, Kansas, Minnesota,
Nebraska and North Dakota.
"The large increase in corn acreage was
more than offset by declines in planted acreage of other feed
grains, so that total feed grain acreage is down 103,000 acres.
However, the USDA's projection of feed grain area harvested for
grain is 519,000 acres larger than last year's harvested area. Corn
acreage expected to be harvested for silage or abandoned totals
7.606 million acres, about equal to that of last year but well above
the typical area of about 7 million."
Planted acreage of soybeans is
estimated at 74.809 million acres, 1.405 million more than planted
last year but 602,000 less than indicated in March. The
year-over-year increase in acreage has occurred primarily in
Arkansas, Mississippi, Nebraska and North Dakota. The large increase
in soybean acreage has been partially offset by a 632,000-acre
decline in area planted to other oilseeds. Harvested acreage of all
oilseeds is projected to be 743,000 acres larger than last year's
harvested area.
"The unsolved piece of the production
puzzle is yield prospects, although there will continue to be some
debate about the magnitude of unharvested acreage in areas that have
experienced excessive precipitation," said Good. "The most widely
watched indicator of yield potential is the USDA's weekly report of
crop conditions. That report, based on a wide spectrum of
observations, is not an objective indicator of yield potential but
is the best public information about the condition of the crop.
"Over the past 18 years, there has been
a relatively high correlation between the percentage of the crop
rated good or excellent in the last report of the season and the
U.S. average yield when yields are adjusted for trend increases.
Current crop condition ratings are a useful guide to yield
potential, but those ratings could change significantly by the end
of the season."
As of June 27, 71 percent of the corn
crop and 66 percent of the soybean crop were rated in good or
excellent condition.
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"If those ratings persist through the
end of the season, the U.S. average yields would project to 146.5
bushels for corn and 41.5 bushels for soybeans," said Good. "Using
the USDA's projection of harvested acreage, those yields would
result in production of 10.748 billion bushels of corn and 3.057
billion bushels of soybeans."
Assuming that stocks of corn at the
beginning of the 2004-05 marketing year are at the
806-million-bushel level projected by USDA and that consumption of
corn during the upcoming year is at the projected level of 10.505
billion bushels, a crop of 10.748 billion bushels would result in
2004-05 ending stocks of 1.064 billion bushels. At that level,
stocks would represent 10.1 percent of consumption. Based on a model
estimated over the period 1989-90 through 1997-98, a stocks-to-use
ratio of 10.1 percent projects to a 2004-05 marketing-year average
farm price of $2.58 per bushel.
"Based on the three-year average U.S.
corn basis and the five-year average monthly farmer marketings --
percent of the crop marketed each month -- the futures settlement
prices on July 2 represented a marketing-year average price of
$2.55, 3 cents below the price projected by the stocks-to-use
model," said Good.
"Using the same assumptions for
soybeans, 2004-05 marketing year-ending stocks are projected at 312
million bushels, or 10.9 percent of consumption. At that level, the
stocks-to-use model projects a season's average farm price of $6 per
bushel. The closing futures prices on July 2 reflected a 2004-05
marketing-year average farm price of $6.38 per bushel."
Good added that the current projections
from these models suggest that the recent decline in corn prices now
fully reflects a very large corn crop in 2004. Soybean prices,
however, do not reflect a crop as large as projected by current crop
conditions.
"Obviously,
prices are influenced by a number of factors, so the
ratio-of-stocks-to-use is not always an accurate indicator of
average price," said Good. Even though the model has been estimated
over a period thought to reflect current conditions, the results of
this type of analysis should be used with caution and only as a
starting point in price forecasting."
[University
of Illinois news release]
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