USDA's September Crop Production report contained surprisingly large forecasts for the 2005 U.S. corn and soybean crops. The corn forecast exceeded average pre-report guesses by 350 million bushels, while the soybean forecast was 40 million larger than the average guess.
USDA lowered the forecast of corn acreage harvested for grain by 50,000 acres, but the yield forecast of 143.2 bushels was 4 bushels larger than that made in August. The average yield forecast was lower or unchanged for 18 of 33 states. However, yield forecasts were larger for many of the major corn producing states. Of those, the largest increase (11 bushels) came in Illinois. The average yield forecast for the United States is less than 2 bushels below trend value. The current production forecast of 10.639 billion bushels is 286 million bushels larger than that made in August.
On the consumption side, USDA lowered the corn export estimate for the marketing year ended on Aug. 31, 2005, by 15 million bushels, but increased the current year's export forecast by 50 million bushels, putting it at a 10-year high of 2 billion bushels. Corn's feed and residual-use forecast for the current year increased by 75 million bushels, but may still be understated. Consumption of U.S. corn for the current marketing year is projected at a record 10.695 billion bushels. Still, year-ending stocks are expected to remain large, near 2.08 billion bushels. USDA forecasts the 2005-2006 marketing year average price to be in a range of $1.70 to $2.10 per bushel.
Soybean's harvested-acreage forecast remained at August's level of 72.184 million acres. The U.S. average yield forecast increased to 39.6 bushels, 0.9 bushels above the one in August. The average yield forecast was unchanged or lowered for 20 of 29 states. The largest increase (4 bushels) came in Kansas. The yield forecasts were increased by 2 bushels for Illinois, Missouri and Ohio. The 2005 soybean crop is now forecast at 2.856 billion bushels, 65 million larger than estimated in August.
USDA increased the estimate of domestic crush for the marketing year just ended by 10 million bushels, but lowered export estimates by 5 million bushels. For the current marketing year, the forecasts for domestic crush and exports increased by 15 million and 20 million bushels, respectively. The increases reflect a smaller production forecast for Brazil. USDA now expects soybean acreage to decline modestly in Brazil (3.7 percent). For all of South America, soybean acreage is expected to decline by 1.2 percent. However, a return to normal yields in 2006 would result in a much larger crop than harvested in 2005. USDA projects South American production at 3.9 billion bushels, about 70 million below the August forecast, but 370 million larger than the 2005 crop.
USDA expects U.S. soybean inventories by end of the 2005-2006 marketing year to be fully adequate, at 205 million bushels. That production is 25 million bushels larger than the August projection and about 75 million above the minimum pipeline stocks. USDA sees the 2005-2006 marketing year average farm price ranging about $5.15 to $6.05 per bushel, about $0.40 lower than projected last month.
While final crop sizes may differ from the current forecasts, it appears that U.S. and world corn and soybean supplies will remain fully adequate for another year, notes Darrel Good, University of Illinois crop specialist. Marketing decisions for corn will be centered around the use of the Commodity Credit Corporation loan program. In central Illinois, for example, the average cash price on Sept. 9, was about $0.20 below the loan rate, but the loan deficiency payment exceeded $0.40, he notes. Establishing the LDP and selling corn directly out of the field would result in a net price well above the loan rate. Those opportunities may dwindle as corn prices decline further, particularly if the differentials to calculate the posted county prices are adjusted.
Premiums for January delivery in central Illinois averaged about $0.20 above the current spot cash price. For low-cost storage situations, establishing the LDP and forward pricing corn for later delivery might also be considered, adds Good.
Pricing decisions on soybeans are more difficult. Prices have declined sharply in recent weeks, with further declines possible as harvest progresses. Prices, however, remain above the loan rate and the premiums for later delivery are not as large as for corn, says Good. Unless the U.S. crop forecast declines in October, potential for near-term price recovery in soybeans is limited, although basis levels should improve after harvest, he concludes.
Darrel Good, University of Illinois