September 17, 2001
CORN AND SOYBEAN PRODUCTION FORECASTS
The USDA's September Crop Production
report reflected the season's second forecast of U.S. corn and
soybean production. At 9.238 billion bushels, the corn production
forecast is only 28 million bushels smaller than the August forecast.
The soybean forecast stands at 2.833 billion, 34 million smaller
than the August forecast. As pointed out last week, a small change
in the production forecast from August to September is very typical.
Larger changes often come in later reports.
Since 1979, a smaller corn crop
forecast in September has been followed by a further reduction
in October in 7 of 12 years. The final production estimate was
also below the September forecast in 7 of those 12 years, although
not always the same year in which the October forecast was lower.
The old adage that smaller crop forecasts are followed by even
smaller forecasts is not completely verified by recent history.
For soybeans, a smaller crop forecast
in September has been followed by a further reduction in October
in 6 of 11 years since 1979. The final production estimate was
below the September forecast in only 5 of those 11 years. As with
corn, the change in direction of the September forecast is not
a good predictor of the direction of change in October or in the
Forecasts of world supply, consumption,
and stocks of corn for the 2001-02 marketing year contained some
significant changes from August. Production is forecast at 571.2
million tons, about 0.3 percent smaller than the August forecast
and 1.2 percent smaller than the 2000-01 crop. Consumption is
expected to increase by 2.4 percent over consumption of last year,
resulting in a further reduction in world inventories. Stocks
at the end of the 2001-02 marketing year are forecast at 118.5
million tons, down from 155.5 million at the beginning of the
year and 170.9 million a year ago. The reduction is occurring
in the U.S. and China. Year ending stocks in the U.S. are projected
at 1.361 billion bushels, compared to 1.938 billion at the start
of the year (September 1). That projection represents 13.9 percent
of projected consumption. Many analysts expect that year-end inventories
will be smaller than the current USDA projection, resulting from
a smaller crop and larger exports than currently projected. The
USDA forecasts 2001-02 marketing year U.S. corn exports at 1.975
billion, 25 million less than projected last month and only 35
million more than exported in the 2000-01 marketing year. China's
likely entry into the World Trade Organization, along with their
second consecutive small crop, suggests that China could import
some U.S. corn during the current marketing year.
For soybeans, forecasts of world
production, consumption, and stocks were changed slightly from
the August forecasts. The direction was the same as for corn
smaller crop, increased consumption, and smaller stocks, although
the magnitude of changes was not quite as large. Record production
is expected to be entirely consumed and stocks are expected to
be reduced modestly during the 2001-02 marketing year. Domestically,
consumption is expected to equal that of last year, resulting
in a very small (15 million bushels) increase in year-ending stocks.
Many analysts believe that a smaller crop forecast later in the
season will result in a forecast of declining stock levels.
The average prices of both corn
and soybeans during the 2001-02 marketing year are expected to
be higher than during the past year. For corn, the mid-point of
the forecast price range is $2.15, $.30 higher than the average
price during the 2000-01 marketing year and the highest in four
years. For soybeans, the midpoint of the forecast price range
is $4.90, $.35 above the average for the 2000-01 year and the
highest in three years. A higher price for soybeans is forecast
even with some accumulation of inventory, due to expectations
of reduced inventories and higher soybean oil prices.
While world and U.S. stocks of corn
are expected to decline sharply and soybean stocks are expected
to remain at modest levels, generally low prices are expected
to persist. High prices will not be required if supplies (production
plus inventory) are adequate to meet world consumption needs,
even though stocks are being reduced. Higher prices will be required
when supplies are not adequate and consumption has to be reduced.
That scenario may or may not develop over the next year, depending
on the final outcome of this year's production and prospects for
production in 2002-03. The probability of more frequent price
rallies, however, has been increased by the tightening of world
stocks. The need for the market to encourage increased corn acreage
in the U.S. in 2002 suggests more potential for corn price rallies
than for soybeans.
Issued by Darrel
University of Illinois