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"But corn prices are still expected to
trade in a wide range," said Darrel Good. "It appears that soybean
prices will continue to be quite volatile, with the most strength in
old-crop prices."
Good's comments came as he reviewed the
current states of the corn and soybean markets, which "continue to
receive a mixed bag of information," he said. "The mix of
information includes U.S. weather and crop conditions, reports on
the rate of consumption, Chinese soybean import decisions, and USDA
supply and consumption forecasts for the year ahead."
Within the past few weeks, Good noted,
some private weather forecasters had predicted a period of hot, dry
weather in the Midwest from mid-June to mid-July. Currently,
however, the primary concern in many areas is excessive
precipitation that has resulted in planting delays and loss of some
crops to ponding and flooding.
"The market always has a difficult time
evaluating the impact of excessive precipitation, recognizing that
yield potential for the majority of the acreage remains high," said
Good. "The evaluation process is a little more complicated this year
due to the differences of opinion about the magnitude of planted
acreage -- or intentions -- relative to intentions reported in
March.
"In general, the market has been
expecting that the USDA's June 30 'Acreage' report will reveal more
corn and less soybean acreage than was indicated in the March
'Prospective Plantings' report. Now, uncertainty about the magnitude
of unharvested acreage will become an issue as well."
The focus on the consumption side of
the market has been on the rate of corn exports and the rate of the
domestic soybean crush. The USDA continues to project U.S. 2003-04
marketing-year corn exports at 2.05 billion bushels. To reach that
level, weekly shipments for the final 12 weeks of the year need to
average 48 million bushels. The average for the past four weeks was
only 36 million bushels.
"However, export sales had been large,
and it appeared that shipments might accelerate to the needed
level," said Good. "For the last reporting week, however, the USDA
reported new sales of only 2 million bushels. To reach the
projection, new sales need to exceed 21 million bushels per week.
Increasingly, it appears that exports will fall short of the USDA
projection."
The need to reduce the rate of domestic
soybean crush in line with available supplies has been a focus of
the soybean market for several months. Based on the USDA projection
of the crush for the year and on Census Bureau estimates of crush
through April, the crush during the final four months of the
marketing year needs to be 23 percent less than during the same four
months last year.
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"The Census Bureau estimate for May is
not yet available, but the National Oilseed Processors Association
reported that member crush in May was only 12 percent less than in
May 2003," said Good. "If this relatively small rate of decline is
confirmed by the Census Bureau, domestic soybean supplies will be
extremely tight until the new-crop harvest is available, suggesting
that the timing of the harvest will be unusually important this
year.
"Alternatively, the 2003 U.S. crop may
have been larger than the USDA estimate, as suggested by the March 1
'Grain Stocks' report. The
estimate of June 1 stocks, to be released on June 30, will shed more
light on that issue."
The effect of Chinese soybean import
decisions was highlighted last week. China continues to report the
receipt of fungicide-contaminated soybeans from Brazil and has
reportedly now banned, at least temporarily, 23 trading houses from
selling soybeans to China.
Last week, the USDA released the second
forecast of 2004-05 U.S. and world supply and consumption prospects
for grain, as well as the first forecast of the 2004-05 world
soybean prospects.
"The forecast for soybeans was released
a month earlier than has been the case in the past," said Good.
"World stocks of coarse grains, including corn, are expected to be
reduced again by the end of the 2004-05 marketing year. However, the
entire expected decline is to occur in China. Stocks are expected to
grow in Europe and stabilize in most other areas. A similar forecast
has been made for wheat.
For soybeans, the USDA expects some
build-up in U.S. inventories by the end of the 2004-05 marketing
year if the 2004 crop reaches its potential of 2.97 billion bushels.
"A large increase in year-ending stocks
is projected for South America," he said. "That forecast is based on
the expectation of a 7 percent increase in soybean area -- mostly in
Brazil -- and a return to more normal average yields.
"The 2004-05
South American crop is initially forecast at 4.15 billion bushels,
21 percent larger than the most recent harvest and nearly 20 percent
larger than the record harvest of 2002-03."
[University
of Illinois news release]
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