July 6, 2004
CORN AND SOYBEAN PRODUCTION AND PRICE PROSPECTS
While corn and soybean prices will be influenced
by a number of factors over the next several weeks, production
prospects will have a dominate role.
Part of the production puzzle was solved with last week's
USDA Acreage report. Planted acreage of corn is estimated
at 80.968 million acres, 2.232 million more than planted in
2003 and 1.964 million more than indicated in the March survey.
The year-over-year increase in acreage has occurred primarily
in Illinois, Iowa, Kansas, Minnesota, Nebraska, and North
Dakota. The large increase in corn acreage was more than offset
by declines in planted acreage of other feed grains, so that
total feed grain acreage is down 103,000 acres. However, the
USDA's projection of feed grain area harvested for grain is
519,000 acres larger than last year's harvested area. Corn
acreage expected to be harvested for silage or abandoned totals
7.606 million acres, about equal to that of last year, but
well above the typical area of about 7 million.
Planted acreage of soybeans is estimated at 74.809 million
acres, 1.405 million more than planted last year, but 602,000
less than indicated in March. The year-over-year increase
in acreage has occurred primarily in Arkansas, Mississippi,
Nebraska, and North Dakota. The large increase in soybean
acreage has been partially offset by a 632,000 acre decline
in area planted to other oilseeds. Harvested acreage of all
oilseeds is projected to be 743,000 acres larger than last
year's harvested area.
The unsolved piece of the production puzzle is yield prospects,
although there will continue to be some debate about the magnitude
of unharvested acreage in areas that have experienced excessive
precipitation. The most widely watched indicator of yield
potential is the USDA's weekly report of crop conditions.
That report, based on a wide spectrum of observations, is
not an objective indicator of yield potential, but is the
best public information about the condition of the crop. Over
the past 18 years, there has been a relatively high correlation
between the percentage of the crop rated good or excellent
in the last report of the season and the U.S. average yield,
when yields are adjusted for trend increases. Current crop
condition ratings are a useful guide to yield potential, but
those ratings could change significantly by the end of the
As of June 27, 71 percent of the corn crop and 66 percent
of the soybean crop were rated in good or excellent condition.
If those ratings persist through the end of the season, the
U.S. average yields would project to 146.5 bushels for corn
and 41.5 bushels for soybeans. Using the USDA's projection
of harvested acreage, those yields would result in production
of 10.748 billion bushels of corn and 3.057 billion bushels
Assuming that stocks of corn at the beginning of the 2004-05
marketing year are at the 806 million bushel level projected
by USDA and that consumption of corn during the upcoming year
is at the projected level of 10.505 billion bushels, a crop
of 10.748 billion bushels would result in 2004-05 ending stocks
of 1.064 billion bushels. At that level, stocks would represent
10.1 percent of consumption. Based on a model estimated over
the period 1989-90 through 1997-98, a stocks to use ratio
of 10.1 percent projects to a 2004-05 marketing year average
farm price of $2.58 per bushel.
Based on the 3-year average U.S. corn basis and the 5-year
average monthly farmer marketings (percent of the crop marketed
each month), the futures settlement prices on July 2 represented
a marketing year average price of $2.55, $.03 below the price
projected by the stocks-to-use model.
Using the same assumptions for soybeans, 2004-05 marketing
year ending stocks are projected at 312 million bushels, or
10.9 percent of consumption. At that level, the stocks-to-use
model projects a season's average farm price of $6.00 per
bushel. The closing futures prices on July 2 reflected a 2004-05
marketing year average farm price of $6.38 per bushel.
The current projections from these models suggest that the
recent decline in corn prices now fully reflects a very large
corn crop in 2004. Soybeans prices, however, do not reflect
a crop as large as projected by current crop conditions. Obviously,
prices are influenced by a number of factors, so the ratio-of-stocks
to use is not always an accurate indicator of average price.
Even though the model has been estimated over a period thought
to reflect current conditions, the results of this type of
analysis should be used with caution and only as a starting
point in price forecasting.
Issued by Darrel Good
University of Illinois