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"Once the U.S. growing season is
completed, the market will turn more attention to Chinese demand and
South American crop prospects," said Darrel Good. "Forecasts of
Chinese imports are fairly aggressive, and most analysts continue to
report prospects for a significant -- 7 percent -- increase in
soybean area in Brazil.
"Some concern about the South American
crop may be needed to keep prices from moving lower this winter."
Good's comments came as he reviewed the
soybean market. Last month, the USDA forecast the 2004 U.S. soybean
crop at 2.877 billion bushels, 459 million larger than the 2003 crop
and only 12 million less than the record crop of 2001.
"That forecast was based on a survey of
farmers and on some field observations of crops in the seven largest
producing states in late July-early August," said Good. "The
forecast assumed normal weather conditions for the remainder of the
growing season."
The crop forecasting process has been
repeated for the report to be released on Sept. 10 and will be
conducted again for the October and November forecasts. Monthly
forecasts, relative to the final estimate made in January following
harvest, generally become more accurate in later months of the
forecasting cycle as more information is available.
"Anticipating the September forecast
this year is made difficult by the diversity in reported crop
conditions and by the wide range in crop maturity," said Good. "The
USDA's report of crop conditions for the week ended Aug. 29 showed
the poorest crops to be in Louisiana, Michigan, Minnesota, North
Dakota, Ohio and Wisconsin.
"Relative to the five-year average,
crop maturity was latest in Kansas, Michigan, Minnesota, the Dakotas
and Wisconsin. In general, however, August weather conditions were
favorable for much of the crop in the Midwest, and harvest of early
maturing varieties is under way."
For much of the past month, the soybean
market focused on the lateness of the crop in northern growing areas
and the private forecasts of an early freeze that could damage much
of that crop, Good noted.
November 2004 soybean futures moved 30
cents higher, closing at about $5.85, following the
smaller-than-expected August production forecast, and then traded to
a high of $6.52 on Sept. 1. The market focused on crop concerns in
northern growing areas and appeared to ignore the potential effect
of favorable weather on crops in the middle of the country.
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"Now, forecasts of imminent frost have
disappeared, and the National Weather Service forecast for the
period Sept. 12 through 16 calls for above-normal temperatures in
most of the northern growing areas," said Good.
While harvest is well under way in some
southern areas and will be progressing rapidly in the lower Midwest,
considerable uncertainty about crop size will persist beyond the
USDA's September forecast, to be released this week. Current crop
condition ratings, however, suggest that there is potential for the
U.S. average yield to exceed the USDA's August forecast of 39.1
bushels per acre.
"As of Aug. 29, 64 percent of the U.S.
crop was rated in good or excellent condition -- well above the 45
percent of a year ago," said Good. "Based on the relationship
between crop condition ratings at the end of the season and the
average yield over the past 18 years, current crop condition ratings
suggest a 2004 average yield of 41.2 bushels per acre.
"It is likely that crop condition
ratings will continue to decline. The percentage of the crop rated
good or excellent, however, would need to decline to 53 percent for
historical relationships to point to a yield of 39.1 bushels. While
the past relationship between reported crop conditions at the end of
the season and yield is fairly strong, the 'fit' was weak in some
years. Crop condition ratings do not provide a complete indication
of yield prospects but have been a reasonable guide."
An average yield of 41.2 bushels per
acre without a change in the estimate of harvested acreage would
result in a 2004 U.S. soybean crop of 3.035 billion bushels. If the
percentage of the crop rated good or excellent declines another five
points, a yield of 40.2 bushels and a crop of 2.96 billion bushels
would be projected by past relationships.
"A crop of that size," Good said,
"would likely be enough to push prices back to the early August lows
and probably even lower."
With the
change in frost prospects, November 2004 soybean futures traded back
to the $5.80 level early on Sept. 7.
[University
of Illinois news release]
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