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"The expectation is that growth in feed
demand will be back on track soon," said Darrel Good. "Such a
rebound in demand will be critical for soybean prices during the
year ahead. A large U.S. harvest in 2004, along with increased
acreage and a return to trend yields in South America in 2005, would
result in an abundant world supply of soybeans by the spring of
2005.
"That scenario is a long way from being
accomplished but would likely result in a return to lower soybean
prices than currently reflected in the futures market. That market
remains strongly inverted, with prices for the 2005 crop $2.30 below
the current cash price. Those deferred prices, however, are much
higher than prices experienced from late 1998 through the first half
of 2003. Periods of higher prices during the summer of 2004 may
offer opportunities to price a portion of the 2005 crop."
Good's comments came as he reviewed the
volatile situation in soybean prices. Last week alone, July 2004
futures had a 75-cent trading range, and November 2004 futures
traded in a range of 65 cents.
"The volatile price behavior is being
generated by a number of factors, including U.S. weather and crop
progress," said Good. "After an extremely fast start to the planting
season, heavy rains in some areas brought planting to a halt and
resulted in areas of ponding and flooding.
"Some replanting will be required and
some area may be lost for the year. Planting progress is now behind
the average pace in Wisconsin, Michigan and Ohio. The magnitude of
the area to be replanted is still not known."
In general, the later planting of the
last 25 percent of the area may make it a little more difficult to
reach the 40-bushel average yield projected by the USDA's World
Agricultural Outlook Board. However, history suggests that July and
August weather is still most important in determining soybean
yields.
"Adverse conditions this summer could
compound the effects of planting delays, while favorable conditions
could more than compensate for early problems and produce a trend
yield," said Good. "Both outcomes have been experienced. Look for
the debate about acreage, crop conditions and production potential
to continue to provide wide price swings.
"Price jitters associated with
uncertain production prospects are common, but may be magnified this
year because of late-season production problems in the United States
in 2003 and in South America in 2004. World stocks are a little
tighter as a result of the shortfall in production."
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Uncertainty about Chinese soybean
demand has also contributed to soybean price volatility and may
continue to do so, Good added.
"China bought large quantities of
soybeans last fall as the shortfall in U.S. production was
recognized," said Good. "The exact timing of their purchases is
difficult to track from USDA reports since some sales are initially
reported as sold to 'unknown' destinations.
"The USDA reports that 302 million
bushels of U.S. soybeans have been exported to China since Sept. 1,
2003, nearly 9 percent more than during the same period one year
earlier. There are currently no outstanding U.S. sales of old-crop
soybeans to China, which is typical at this time of year."
It was assumed that China would
continue to import South American soybeans at a rapid pace into the
fall of 2004. In the past few weeks, however, China has rejected
several shipments of soybeans from Brazil on the basis of fungicide
contamination. Initially, there were rumors that the rejected
Brazilian soybeans would be replaced by purchases from the United
States. To date, no such sales have been reported.
"Chinese feed demand has been weakened
by the outbreak of bird flu in January, resulting in declining
prices and falling soybean crush margins," said Good. "Attempts by
processors to stabilize the price of soybean meal in China have not
yet been successful. The Chinese demand picture, both in the short
run and into next year, now includes a lot more uncertainty than was
the case just a few weeks ago."
The developments in China may have also
affected sales of U.S. soybeans for delivery in the 2004-05
marketing year. The USDA first reported such sales to China in late
November 2003.
"By late
January 2004, sales of new-crop soybeans to China reached about 75
million bushels," said Good. "It appeared that China was buying U.S.
soybeans early this year as the result of waiting too long last
year. However, no new sales of new-crop U.S. soybeans to China have
been reported since late January."
[University
of Illinois news release]
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