October 13, 2003
THE TALE OF TWO CROPS
The USDA now forecasts
the 2003 U.S. corn crop at 10.2 billion bushels. That forecast
is 263 million larger than the September forecast and 156 million
larger than the previous record crop of 1994. The U.S. average yield
is forecast at 142.2 bushels per acre, 3.6 bushels above the 1994
record. Of the major corn producing states, the average yield is
expected to be below that of a year ago only in Iowa, Minnesota,
North Dakota, and Wisconsin. Large increases in average yields are
expected in eastern and southeastern states.
In contrast, the USDA now forecasts the 2003
U.S. soybean crop at 2.468 billion bushels, 175 million bushels
less than forecast in September and 280 million less than produced
in 2002. At 34 bushels per acre, the projected U.S. average yield
is 4 bushels below the 2002 average, the lowest in 10 years and
7.4 bushels below the record yield of 1994. The forecast represents
the smallest crop in 7 years. Average yields in 2003 are expected
to be lower than in 2002 in only 12 of the 29 states included in
the USDA’s forecast. Sizeable increases are expected in some
eastern and southern states. Large declines are expected in the
three largest soybean producing states, Illinois down 6, Iowa down
14, and Minnesota down 11.5.
In the case of corn, the large crop is expected
to be met by an increase in both domestic use and exports. Increased
ethanol production and a modest increase in feed consumption is
expected to push domestic use up by 217 million bushels, or 2.7
percent. U.S. exports are expected to grow by 200 million bushels,
or 12.5 percent, due to less competition from China and Brazil.
Stocks of U.S. corn are expected to grow from 1.086 billion bushels
on September 1, 2003 to 1.353 billion on September 1, 2004. World
coarse grain stocks, however, are projected to decline sharply for
the fourth consecutive year. Significant reductions in inventory
this year are expected to occur in China, the European Union, and
in Russia. The USDA sees the 2003-04 marketing year average price
in a range of $1.90 to $2.20, compared to the $2.32 average for
the previous year. The current price is near the low end of the
For soybeans, the small U.S. crop will require
a large reduction in consumption this year. The USDA has projected
year ending stocks at a bare bones level of 130 million bushels.
Based on the experience of 1995-96 and 1996-97, it is unlikely that
stocks can be reduced to a lower level and still maintain the supply
pipeline. If that is the case, use of U.S. soybeans during the current
year will be limited to 2.515 billion bushels, 277 million less
than was used last year and the smallest annual use in 7 years.
The USDA expects a 16 percent reduction in exports and a 7 percent
reduction in the domestic crush. A reduced domestic crush will result
in a rare decline in domestic meal and oil consumption and a large
decline in meal and oil exports. Soybean oil exports are projected
at 850 million pounds, compared to 2.25 billion pounds during the
year just ended.
Consumption of soybean meal and oil outside of
the U.S. is expected to increase this year, fed by a much larger
South American crop. The USDA now expects a 14 percent increase
in soybean area and production in Brazil and a 5 percent increase
in soybean area and a 4 percent increase in production in Argentina.
The 2004 South American crop is projected at 3.72 billion bushels,
340 million larger than the 2003 crop. Just like last year when
the 140 million bushel decline in U.S. production was more than
offset by a 560 million bushel increase in South American production,
this year’s decline of 280 million bushels is expected to
be more than offset by a 340 million bushel increase. The USDA projects
the 2003-004 marketing year average farm price in a range of $6.05
to $6.95, up from the $5.53 average of last year. The current price
is near the upper end of the projected range.
With a large corn crop to be used and significant
rationing required in U.S. soybean consumption, the market will
continue to focus more attention on the rate of consumption of each
of those crops. In addition, the soybean market will be influenced
by the progress of the South American crop. Finally, the USDA November
production forecasts will be important in confirming crop size.
Historically, there have generally been only small changes in the
U.S. average soybean yield forecast in November. The change has
been as large as 1 bushel only 5 times in the past 30 years. One
bushel declines occurred in 1984 and 1993. In 1983, the year with
the most similar pattern to 2003, the average yield forecast increased
in November and the final estimate was higher than the November
forecast. For corn, there have been four years in the past 30 years
when the yield forecast declined in September and increased in October,
as was the case this year. The average yield forecast increased
in November all four years, by 1.1 to 2.8 bushels.
Soybean prices are expected to remain fairly
volatile as the market searches for a seasonal high. Corn prices
will likely remain under pressure through harvest.
Issued by Darrel Good
University of Illinois