September 15, 2003
CORN AND SOYBEAN PRODUCTION PROSPECTS
Based on the price reactions, the market was
shocked by USDA’s September forecast of the 2003 corn and
soybean crops. November 2003 soybean futures moved to a contract
high of $6.30 on September 11 and settled at 6.23 on September 12.
The $.265 increase by the close on Friday, reflected a crop forecast
of 2.644 billion bushels, 110 to 115 million less than reflected
in the pre-report average trade guess. The September USDA forecast
was 218 million bushels, or 7.6 percent, below the August forecast.
That is one of the largest August to September reductions of the
past 30 years, second only to the 308 million (16.7 percent) reduction
of 1983. The U.S. average yield is projected at 36.4 bushels per
acre, 3 bushels below the August projection and 1.4 bushels below
the 2002 average yield. At the projected level, the 2003 yield will
be the lowest since 1995.
Compared to the August forecast, September yield
forecasts were much lower in Iowa, Kansas, Minnesota, Missouri,
North Dakota, South Dakota, and Wisconsin. Yield prospects improved
in Alabama, Kentucky, Mississippi, and Tennessee. Yield prospects
in the eastern corn belt states changed little from August to September.
The smaller soybean crop will require a reduction
in consumption of U.S. soybeans during the 2003-04 marketing year.
The USDA expects that reduction to be accomplished by higher prices
and a larger South American crop. The 2003-04 marketing year average
farm price of soybeans is projected in a range of $5.25 to $6.15,
compared to $4.55 to $5.55 projected last month and the $5.50 average
of 2002-03. The 2004 South American crop, which has yet to be planted,
is projected at 3.573 billion bushels, nearly 200 million larger
than the 2003 crop. The increase is expected to come from a 7 percent
increase in soybean acreage and a modest 1 percent reduction in
December 2003 corn futures declined $.14 following
the release of the September production forecast of 9.944 billion
bushels. The forecast was 120 million bushels below the August forecast,
but 144 million larger than the average trade guess. The national
average yield is projected at 138.5 bushels per acre, 1.4 bushels
below the August forecast, but 8.5 bushels above the 2002 average
and only 0.1 bushel below the 1994 record yield. Compared to the
August yield forecasts, yield prospects were unchanged to higher
in the eastern and southeastern growing areas and lower in western
and northern areas.
At 9.944 billion bushels, the 2003 U.S. corn crop will be large
enough to meet expected domestic and export requirements, but will
likely result in a further decline in year-ending stocks. The USDA
projects the 2003-04 marketing year average farm price in a range
of $2.10 to $2.50, $.10 higher than the August projection. The 2002-03
marketing year average was $2.30.
The market now awaits the October production
forecast. Since 1970, there has been a very low correlation between
the September change in the production forecast and the change in
the forecast in October. That is, the direction and magnitude of
the change in the production forecast in October 2003 cannot be
predicted based on the change that occurred in September, particularly
for soybeans. Opinions about potential changes in October vary sharply
In addition to crop size, the market will also
pay close attention to the rate of consumption, particularly soybean
consumption. With soybean export sales off to a rapid start, the
market will want to see evidence of a decline in overall consumption
that is in line with the USDA projections.
The corn price decline following the September
USDA Crop Production report has pushed harvest bids to near the
CCC loan rate. Prices at such a low level, coupled with a modest
carry in the price structure, suggest that storing the newly harvested
crop unpriced is a low risk strategy. At risk is the cost of storage.
In contrast, soybean prices are well above the
CCC loan rate. With half of the marketing window (pre-harvest) now
passed, new crop soybean prices are at the highest level of the
year. In addition, there is no carry in the price structure. This
combination of factors is providing an opportunity to price a significant
portion of the 2003 crop.
Issued by Darrel Good
University of Illinois