FEBRUARY 23, 2004
SOYBEAN PRICES FIND MORE SUPPORT
U.S. soybean production was relatively
stable from 1997 through 2002, averaging 2.747 billion bushels in
a range of 2.654 to 2.891 billion bushels. The larger world appetite
for soybeans has been supplied by South America.
Brazilian production grew from 1.003 billion bushels in 1997 to
1.929 billion in 2003. During the same period, production in Argentina
jumped from 412 million to 1.304 billion bushels. Those two countries
accounted for almost 45 percent of world soybean production in 2003,
up from 29 percent just 6 years earlier. It has been anticipated
that the significant shortfall in U.S. soybean production in 2003
would be offset by another large increase in the size of the South
American crop in 2004. The USDA surprised the market earlier this
month with an even larger forecast of the Brazilian crop. That crop
is now forecast at 2.241 billion bushels, 312 million larger than
the 2003 harvest.
With production expected to be at 1.341 billion in Argentina and
165 million bushels in Paraguay, the 2004 South American crop is
projected at 3.747 billion bushels, 360 million larger than the
2003 harvest. That increase would offset the 330 million bushel
reduction in the size of the U.S. soybean crop in 2003 and contribute
to a 5 percent increase in total world oilseed production this marketing
year. However, expectations now being reported from the private
sector are for the Brazilian crop to fall well short of the current
USDA projection. Wet weather is reportedly adversary affecting harvest
in northern areas and dry weather is hampering crop development
in southern areas. Private expectations are generally 120 to 160
million bushels smaller than the current USDA forecast.
A smaller than expected South American crop could have significant
longer term price implications. The rate of U.S. soybean exports
and the rate of export sales have slowed significantly in recent
weeks, partly in anticipation of the availability of South American
supplies. Those supplies will still be very large and will satisfy
world demand from April through September. However, if the world
appetite for soybeans continues to increase, a large U.S. crop will
be required in 2004.
The first indication of the potential size of the U.S. soybean crop
will come with the USDA's Prospective Plantings report on March
31. In the February baseline projections, the USDA forecast a 400,000
acre increase in U.S. soybean plantings in 2004. At the annual Outlook
Forum last week, the USDA projected a 1.1 million acre increase
in soybean plantings. Larger acreage of other crops is also expected.
The February baseline projections indicated a 600,000 acre increase
in Conservation Reserve Program (CRP) area and a 2.4 million acre
increase in plantings of major field crops. Those magnitude of increases
were also forecast at the Outlook Forum. There is no question that
there is incentive to increase crop acreage in 2004 and that there
is considerable acreage competition in regions that produce some
combination of cotton, oilseeds, feed grains, and wheat. The March
report of 2004 planting intentions will be important not only for
indications of acreage of individual crops, but for indications
of total crop acreage. Even with an increase in acreage, the U.S.
average soybean yield will have to rebound significantly in 2004
to produce a crop in line with expected use.
For now, the soybean market will continue to react to expectations
about the size of the South American crop and to the reported rate
of consumption of U.S. soybeans. As indicated earlier, the pace
of U.S. exports and export sales has begun to moderate. As of February
19, cumulative export inspections were 7 percent below those of
a year ago. Just 5 weeks earlier, cumulative inspections were 5
percent larger than those of a year ago. As of February 12, unshipped
sales of U.S. soybeans were 16 percent less than outstanding sales
on the same date last year. For the year, the USDA projects a 14
percent reduction in U.S. exports.
Domestically, the USDA has forecast a 10 percent reduction in soybean
crush due to limited supplies. Census Bureau estimates through December
showed a cumulative marketing year decline (four months) of 0.6
percent. The January estimate is not yet available, but the estimate
from the National Oilseed Processors Association for January indicated
a crush near the level of a year ago. It is now the task of the
market to find a price that will result in a significant slow down
in the rate of consumption and attract a few more acres in the U.S.
in 2004. With South American crop uncertainty and all of the U.S.
growing season yet to come, price action could be extreme for an
Issued by Darrel Good
University of Illinois