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"If the weak basis and large carry in the corn market persists into
harvest, producers may want to consider storing as much of the crop
as possible, establishing the loan deficiency payment (LDP), and
forward pricing for later delivery in order to capture the carry,"
said Darrel Good.
"Soybean prices are well above the loan rate and there is very
little carry in the market. More aggressive sales of soybeans may be
warranted as harvest approaches, particularly if the USDA lowers the
production forecast in September."
Good's comments came as he reviewed the USDA's August forecast of
the 2005 U.S. corn and soybean crops. Those forecasts were near the
expected levels, but corn prices declined on prospects of adequate
stocks. Soybean stocks are expected to be tighter and there
continues to be more uncertainty about the actual size of the
soybean crop.
At 10.35 billion bushels, the 2005 U.S. corn crop is projected to be
1.457 billion bushels smaller than the record crop of 2004, but
marginally larger than the average pre-report guess. The national
average yield is projected at a below-trend value of 139.2 bushels,
down from the record yield of 160.4 bushels in 2004.
"The largest yield declines are expected in Illinois--down 55
bushels, and Missouri--down 63 bushels," said Good. "With Sept. 1,
2005 stocks of corn projected at 2.11 billion bushels, the supply of
corn for the 2005-06 marketing year is projected at 12.47 billion
bushels, 305 million less than the record supplies of a year ago."
The USDA's World Outlook Board lowered the projection of feed and
residual use of corn during the year ahead by 100 million bushels,
to a total of only 5.75 billion bushels. That projection is 400
million (6.5 percent) below projected use for the current year and
below trend value.
"Apparent use of corn in that category is inflated by a likely
over-estimate of the size of the 2004 U.S. crop, so a decline next
year appears logical," said Good. "However, the steep decline in the
projection in the face of expanding livestock production was a bit
surprising. Some of the expected decline in feed use of corn can
likely be attributed to increased feed of distillers dried grain.
However, feed and residual use of other grains is also expected to
decline by 59 million bushels--13 percent.
"The actual rate of use will not be known until the release of the
Dec. 1, 2005 stocks report in January 2006."
The World Outlook Board continues to project a 125 million bushel
increase in exports and a 180 million bushel increase in domestic
processing use of corn during the year ahead. Stocks of U.S. corn at
the end of the 2005-06 marketing year are projected at an ample 1.9
billion bushels.
"The marketing year average farm price is projected in a range of
$1.80 to $2.20, compared to an average for the current year of
$2.07," said Good.
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"At
the close of trade on Aug. 12, the futures market projected a
2005-06 average farm price near $2.20. While the USDA's production
forecast may decline modestly in subsequent reports, the decline is
not likely to be large enough to threaten the comfortable level of
year-ending stocks."
The
2005 U.S. soybean crop is projected at 2.791 billion bushels, 350
million smaller than the record crop of 2004. That projection
reflects a national average yield forecast of 38.7 bushels, about
1.3 bushels below trend value and 3.8 bushels below last year's
record yield.
"Year-over-year yield declines are expected to be the largest in
Illinois--down 11.5 bushels, Kansas--down nine bushels, and
Missouri--down 14 bushels," said Good. "Year-over-year increases in
yields are expected in Minnesota--up 6.5 bushels--and North
Dakota--up nine bushels."
With
Sept. 1, 2005 stocks of 300 million bushels, U.S. soybean supplies
at the beginning of the 2005-06 marketing year are projected at
3.094 billion bushels, 165 million less than supplies of a year ago.
The USDA's World Outlook Board projects a 20 million (1.2 percent)
decline in the domestic crush and a five million bushel decline in
exports of soybeans during the year ahead.
"The
smaller crush projection reflects the expectation of a decline of
950,000 tons in U.S. soybean meal exports, even though meal
consumption in major importing countries is expected to increase,"
said Good. "South America, rather than the United States, is
expected to benefit from that increase."
Like
corn, residual use of soybeans during the current year has been
inflated by an apparent over-estimate of the 2004 crop. Use in that
category is expected to decline by 20 million bushels, to a normal
level, during the year ahead. Stocks of U.S. soybeans at the end of
the 2005-06 marketing year are projected at 180 million bushels,
about 50 to 60 million above the minimum level that can be attained.
The
2005-06 marketing year average farm price is projected in a range of
$5.50 to $6.50, compared to the average of $5.80 for the current
year. At the close of trade on Aug. 12, the futures market projected
an average 2005-06 farm price of about $6.25.
"Any
reduction in the U.S. crop forecast in subsequent reports would
result in expectations of a very tight supply situation for the year
ahead, at least until the outcome of the South American crop is
known," said Good.
"More
normal yields in Brazil in 2004 could result in a crop more than 400
million bushels larger than the 2005 crop, more than offsetting the
shortfall in U.S. production."
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