WILL CROP FORECASTS INCREASE IN NOVEMBER?
The USDA's October Crop Production report contained
small surprises for both corn and soybeans. At 8.97 billion bushels,
the corn production forecast was 121 million bushels larger than
the September forecast and generally larger than expected. At 2.654
billion bushels, the soybean production forecast was unchanged form
the September forecast and generally smaller than expected.
The larger corn forecast reflects a 1.8 bushel
increase in the projection of the U.S. average yield. At 127.2 bushels
per acre, the forecast is 11 bushels below the 2001 average yield.
The month-to-month increase resulted from a 10 bushel per acre increase
in the projection of the Iowa average yield and a 7 bushel per acre
increase in the Minnesota projection. Projections for Illinois and
Indiana declined by 2 bushels, while the projection for Ohio dropped
by 6 bushels. The U.S. average soybean yield is projected at 37
bushels per acre, 2.6 bushels below the 2001 average.
To date, the pattern of corn production forecasts
has followed the same pattern as that of last year lower
in September and higher in October. There have been six years in
recent history that have seen the same pattern. In five of those
years, the production forecast was larger again in November. In
one year, the forecast was unchanged in November. The pattern of
soybean production forecasts, higher in September and unchanged
in October, has been rare. It occurred in 1977 and in both 1973
and 1982 changes in the forecast in October were small. In those
three years, the November forecast was higher once, unchanged once,
and lower once.
While the history of changes in production forecasts
has some interest, it does not have much predictive capability.
Each year is unique. Based on harvest reports to date, there is
some expectation that both the corn and soybean production forecasts
will show modest increases in November.
The markets for corn and soybeans should now turn
more attention to the rate of consumption. With year ending stocks
of both crops expected to be near minimum levels, the rate of consumption
will have important price implications. A consumption rate above
that needed to reach the projected level of use for the year would
imply that higher prices are needed to slow the rate of use. A slow
rate of use would imply a continuation of somewhat lower prices.
For corn, there is general agreement that domestic
uses for seed, food, and industrial purposes will increase again
this year. There is less consensus about domestic feed and residual
use and exports. The USDA projects a decline of 212 million bushels
(3.6 percent) in feed and residual use during the current year.
Indications of only a modest reduction in animal numbers and a projected
22 percent reduction in feed and residual use of other feed grains
suggests that consumption of corn could be larger than projected.
In either case, the reduction in use would not be expected until
the last half of the current marketing year. The first indication
of the rate of domestic feed and residual use will come with the
December Grain Stocks report to be released on January 10.
For exports, the USDA projects a 100 million bushel
(5 percent) increase during the current year. Through the first
five weeks of the year, shipments are running 37 percent below those
of last year. In part, the decline reflects interruptions in shipments
at the Gulf and on the West Coast. Still, total export commitments
(shipments plus outstanding sales) are running about 12 percent
below the total of a year ago.
In the case of soybeans, the domestic crush is
expected to decline only 25 million bushels (1.5 bushels) from the
record crush of the past year. The major adjustment to the smaller
supply is expected to come in exports. At 850 million bushels, the
USDA expects exports this year to be 21 percent smaller than shipments
of a year ago. The continued increase in South American production
is expected to fill the gap. To date, export shipments of soybeans
are down about 20 percent from the total of a year ago, while total
commitments are down about 7 percent.
The average cash price of corn in central Illinois
has declined to the lowest level since late July, even though the
basis has remained very strong. It is typically a weak basis at
harvest and a quick recovery in that basis that produces a post-harvest
recovery in cash prices. The post-harvest recovery could be small
this year. If current production and consumption forecasts are accurate,
prices could languish in a relatively narrow range through the winter
and then become more volatile in the spring. Cash soybean prices
in central Illinois recovered slightly following the October Crop
Production report, but are at the lowest level since late June and
are below the CCC loan rate. In addition to the rate of use, the
soybean market will increasingly reflect the development of the
2003 South American crop. A larger crop is already factored into
the price structure, so that any threat to the crops there would
be expected to push prices higher.
University of Illinois