USDA’s monthly world crop supply and consumption report provided some support for prices, specifically corn, soybeans and wheat futures set new highs. 

Specific to corn, USDA increased the U.S. export forecast for the current marketing year by 75 million bushels, and reduced the year-ending stocks forecast by the same amount. At 2.025 billion bushels, exports would be the largest in 10 years, notes Darrel Good, University of Illinois ag economist. The current year-ending stocks forecast at 2.226 billion bushels, is 200 million less than the January forecast.

"For the 2006/2007 marketing year, acreage at the level reported in the March Prospective Plantings report and a trend yield (149 bushels) results in a production forecast of 10.55 billion bushels," says Good. "Consumption is projected at 11.645 billion bushels, 635 million above the current year's projection, led by a 550 million bushel (34 percent) increase in the amount of corn used for ethanol production."

Corn exports are expected to grow by 125 million bushels, and Sept. 1, 2007, stocks are projected at 1.141 billion bushels. The 2006/2007 marketing year average farm price is expected to be between $2.25 and $2.65 per bushel. "The midpoint of that price range would be the highest average farm price in 10 years," says Good.

For soybeans, USDA did not alter any domestic projections for the current year. The 2005/2006 marketing year farm price is expected to average $5.65 bushels, only 9 cents below the 2004/2005 average in spite of a large increase in year-ending stocks. "For the 2006/2007 marketing year, acreage as reported in March and an average yield of 40.7 bushels would result in a crop of 3.08 billion bushels, about equal to the record 2005 crop," says Good.

Consumption is forecast at 2.999 billion bushels, 217 million more than the current-year projection, led by a 190-million-bushel increase in the export projection. U.S. soybean stocks are expected to grow from 565 million bushels on Sept. 1, 2006 to 650 million on Sept. 1, 2007, and the 2006/2007 marketing year average farm price is projected in a range of $5.10 to $6.10 per bushel.

"Unlike many (futures) bull markets are led by nearby prices that generate inversions in the price structure, the deferred contracts are leading the current rally," notes Good. "The current situation suggests to some that prices may be moving to a new plateau (in nominal terms), as the higher prices appear to be generated by strong demand and a higher cost structure. If these conditions persist, the key for long-term price levels may be on the supply side."

Darrel Good, University of Illinois.