March 21, 2005
UPCOMING USDA CROP REPORTS
The corn and soybean markets have been
heavily influenced by Brazilian crop prospects and speculative
trading activity. The USDA reports to be released on March
31 will bring the U.S. situation back into focus.
Two important reports will be released on March 31--Grain
Stocks and Prospective Plantings. The Grain Stocks report
will reflect the estimate of U.S. inventories as of March
1, 2005. In the case of corn, this report will provide an
opportunity to assess the rate of domestic use during the
second quarter of the 2004-05 marketing year, December 2004
through February 2005. In particular, the report will shed
light on the rate of use in the feed and residual category.
For the marketing year, the USDA projects feed and residual
use at a record 6.075 billion bushels, 4.8 percent more than
used last year. Use during the first quarter of the year,
based on the estimate of December 1, 2004 stocks, was calculated
at 2.182 billion bushels, only 0.7 percent more than used
in the first quarter of the 2003 marketing year. First quarter
use, however, does not always provide an accurate forecast
of use for the year. First quarter use as a percentage of
the total use for the year has varied by about 3 percentage
points over the past 5 years. That is a small range by historic
standards, but means that projections of use for the year
based on first quarter use could have been off by 150 to 170
The feed and residual use of corn during the first half of
the year has been a little better predictor of total use.
Use during the first half of the year as a percentage of the
use during the entire year has varied by about 2 percentage
points over the past 5 years, but only 0.9 percentage point
over the past 4 years. A March 1,2005 corn stocks estimate
in excess of 6.7 billion bushels would be strong evidence
that projected feed and residual use for the year is too high.
For soybeans, the March 1 stocks estimate will be most useful
in providing a check on the accuracy of the 2004 crop estimate.
Domestic crush and export use is pretty well known based on
USDA and Census reports. Residual use can vary significantly
by quarter, but is generally consistent for the first half
of the year. Based on estimates of crush and exports during
the first half of the year, March 1 soybean stocks should
be near 1.4 billion bushels. A smaller figure would imply
that the 2004 crop was over estimated and vice versa.
In general, the market probably has more interest in the
Prospective Plantings report than in the Grain Stocks report.
Planted acreage of corn has varied considerably since acreage
reduction programs were eliminated in 1996. Acreage was at
only 75.7 million in 2001, but was at a 19 year high of 80.9
million in 2004. Soybean acreage jumped sharply in 1997, (to
70 million acres), peaked in 2001, declined slightly through
2003, but was a record 75.2 million in 2004. Wheat acreage
increased in 1996 (to 75 million acres) declined to a 30 year
low of 59.4 million in 2001, increased to 62.1 million in
2003, and declined to 59.7 million last year. The recent high
in cotton acreage was nearly 15.8 million in 2001. Acreage
has been between 13.5 and 14 million over the past three years.
For 2005, it is expected that producers will reveal inventories
to plant more acres to corn and cotton and fewer acres to
soybeans and wheat than in 2004. Winter wheat seedings have
already been estimated to be 1.8 million acres less than in
2004. There is some difference of opinion about the magnitude
of the changes, however, due to escalating input costs, uncertainty
about soybean rust, and fluctuating crop prices. Final acreage
may also differ from intentions depending on planting season
weather and any further changes in crop prices.
If acreage changes are within expectations of 2 to 3 percent
for corn and soybeans, the March 31 report should have little
immediate impact on prices. A 2 percent increase in corn acreage
and a 3 percent decline in soybean acreage combined with trend
yields (about 145 bushels and 40 bushels, respectively) would
provide adequate supplies for the 2005-06 marketing year.
Without surprises on March 31, the next move in corn and soybean
prices will likely be associated with expectations about average
yields in 2005. Those expectations will begin to be formed
by planting season weather and will be molded by weather and
crop developments as the growing season progresses. Periods
of concern will provide pricing opportunities.
Issued by Darrel Good
University of Illinois