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"The USDA's November forecast of the
size of these crops was larger than the October forecasts," said
Darrel Good, who analyzed the implications of the upward revisions.
Now, the U.S. corn crop is forecast at
11.741 billion bushels, 128 million larger than the October
forecast. The U.S. average yield is forecast at 160.7 bushels per
acre, 1.8 bushels above the October forecast. Yield forecasts were
unchanged to higher for all the northern states, where harvest is
later than normal.
On the consumption side, the USDA
increased the forecast of domestic feed and residual use of corn by
25 million bushels and reduced the forecast of exports by an equal
amount. Year-ending stocks of corn are projected at 1.819 billion
bushels, the largest in four years.
"The projection of feed and residual
use of corn, at 6.075 billion bushels, is 5 percent larger than use
during the 2003-04 marketing year," said Good. "The first look at
the rate of use in that category will come with the Dec. 1 grain
stocks report to be released on Jan. 12. The reduction in the
projection of U.S. corn exports reflects the relatively slow start
to this year's export program.
"The projected size of this year's
Chinese corn crop was increased by about 155 million bushels, but
the USDA did not increase the projection of Chinese exports. Those
exports are expected to total about 155 million bushels, down nearly
50 percent from exports of a year ago."
The U.S. soybean crop is now
forecast at 3.15 billion bushels, 43 million bushels larger than the
October forecast. The U.S. average yield is forecast at 42.6 bushels
per acre, six-tenths of a bushel above the October forecast.
"The yield forecasts were unchanged
to higher for all major soybean-producing states except Minnesota
and North Dakota, where the projected [yield] dropped by two bushels
per acre. On the consumption side, the USDA lowered the projection
of 2004-05 marketing-year exports by 15 million bushels. Year-ending
stocks are projected at 460 million bushels, the largest in 18
years," said Good.
Good noted that the USDA now
projects the 2004-05 marketing-year average price of corn in a range
of $1.70 to $2.10 per bushel. The midpoint of that range, $1.90, is
consistent with the average price during the large crop years of
1998-99 through 2001-02.
"The average for those four years
was $1.90, in a range of $1.85 to $1.97," said Good. "The
relationship between year-ending stocks and the marketing-year
average price over the past six years points to an average price
this year of $1.99, based on the USDA's forecast of use and ending
stocks.
"The current market is consistent
with this forecast. Based on the average price received by producers
in September and October and closing futures prices on Nov. 12, the
market currently reflects a marketing-year average price of $2 per
bushel. The futures market reflects monthly average prices -- based
on a three-year average basis -- ranging from $1.84 this month to
$2.18 in August 2005. All in all, there is a lot of consistency
among the forecasts of the season's average price for corn."
[to top of second column in
this article]
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However, Good added, no such
consistency exists for soybeans.
The USDA forecasts the 2004-05
marketing-year average price in a range of $4.55 to $5.35. The
midpoint of that range, $4.90, is well above the average price
during the large crop years of 1998-99 through 2001-02. The average
for those four years was $4.62, in a range of $4.38 to $4.93.
Year-ending stocks as a percentage of use during those four years
ranged from 7.1 to 13.4 percent, compared with the 16.4 percent
projected for this year.
"The relationship between
year-ending stocks and the marketing-year average price of soybeans
over the past six years points to an average price this year in the
low $4 range," said Good. "The average price will not be that low
because nearly one-third of the crop has already been priced at an
average of $5.25. Based on that average and the closing futures
prices on Nov. 12, the current market reflects a marketing-year
average price of $5.15 per bushel."
What is the reason for the big
difference between the current market price of soybeans and the much
lower calculated "value" of soybeans based on the forecasts of large
surpluses?
"Soybean oil," answered Good. "The
average price of soybean meal during the 1998-99 through 2001-02
marketing years was $163 per ton. The current price -- central
Illinois, 48 percent -- is $150 per ton, and the USDA projects the
marketing-year average price in a range of $145 to $175 per ton.
"In contrast, the average price of
soybean oil in those four years of large crops was 16 1/2 cents per
pound; the current price is about 23 cents; and the USDA projects
the marketing-year average price in a range of 21 1/2 cents to 24
1/2 cents per pound."
The relatively high price of soybean
oil does not reflect a short supply situation, Good added.
"World oilseed production is
expected to be 15 percent larger than last year's output," he said.
"Soybean oil prices, then, reflect prospects for a very strong
demand for vegetable oils and only a modest increase in world stocks
of oil.
"However, world stocks of oilseeds
are expected to increase sharply, implying an abundance of oil. The
rate of consumption of U.S. soybean oil will determine if soybean
prices can maintain the recent strength."
[University
of Illinois news release]
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