 
October 18, 2004
CORN AND SOYBEAN DEMAND PROSPECTS
The corn and soybean markets have had a
week to absorb the surprisingly large USDA production forecasts.
Attention will gradually shift to the rate of consumption
of these large crops.
Prices have not come under as much pressure as anticipated
when the production forecasts were released on October 12.
December corn futures traded to a new contract low, but quickly
rebounded and by the close on October 15 were higher than
the day before the report was released. The average central
Illinois overnight cash bid traded to a low of $1.735 on October
4 and again on the day of the report, but was $.04 higher
on October 15. The lowest cash price to date is well above
the lows seen in the low price years of 1997-98 through 2000-01.
Lows in those years ranged from $1.45 to $1.665.
November soybean futures traded to a low of $5.06 on October
12, but that is well above the contract low of $4.83 established
in early 2002. That contract settled at $5.14 on October 15.
The average central Illinois overnight cash bid reached a
low of $4.80 on October 12, but was at $4.865 on October 15.
Again that low is well above the lows reached from 1998-99
through 2001-02. Those lows ranged from $3.875 to $4.295.
Given the size of the USDA production forecasts and the size
of the projected year end inventories, corn and soybean prices
have held up rather well. One reason may be that the market
anticipates stronger demand than in previous years. That demand
strength could be in the form of larger consumption at the
projected price levels or a willingness of end users to pay
higher prices for consumption at the projected levels. For
corn, the USDA has projected increased consumption in all
three categories of use: feed, industrial, and export. Few
would question the potential for a significant increase in
the amount of corn used for ethanol production. Livestock
numbers and prices will provide some hint of the potential
for feed use, but the first indication of the rate of use
in that category will come with the USDA's December Grain
Stocks report to be released in early January. For the most
part, the market will focus on the rate of corn exports and
export sales. Relative to the pace of a year ago, the pace
of export inspections and new sales have started slowly. Inspections
during the first 6 weeks of the marketing year were about
8 percent smaller than during the same period last year. Cumulative
shipments reported in the weekly Export Sales report, however,
have exceeded the inspection figures. Unshipped sales as of
October 7 were 14 percent smaller than on the same date a
year ago. New sales should be large over the next few weeks
in response to the low prices now being experienced. Shipments
will need to average about 41 million bushels per week through
August 2005 for exports to reach the USDA projection of 2.075
billion for the year.
The USDA also projects an increase in domestic and export
use of soybeans during the 2004-05 marketing year following
the supply induced decline in 2003-04. There is general consensus
that domestic use of meal and oil will recover to a trend
level during the year. The focus will be on soybean and soybean
product exports. Like corn, soybean shipments and sales started
a little slower than the torrid pace of a year ago, but inspections
were large for the week ended October 14 Cumulative shipments
during the first 6 weeks of the marketing year were 15 million
bushels ( 18 percent) larger than during the same period last
year. Unshipped sales as of October 7 were 60 million bushels
(16 percent) less than sales on the same date last year. The
good news is that shipments and sales to China are larger
than those of a year ago. The USDA has projected a 10 percent
increase in soybean consumption in China this year and a 33
percent (205 million bushel) increase in imports from all
sources. The European Union and Mexico are buying U.S. soybeans
at a slower pace than that of last year.
In addition to monitoring the pace of U.S. soybean exports
and export sales, the market's expectation of U.S. exports
will be influenced by the potential size and progress of the
South American crop, particularly the Brazilian crop. The
USDA projects a 7.2 percent increase in soybean area in Brazil,
but that is less than the 9.6 percent increase projected in
September. Still, that increase in conjunction with normal
yields would result in a 22.6 percent increase in Brazilian
production in 2005. A more modest 11.4 percent increase is
projected for Argentina. South American crops at the projected
level would provide increased competition for U.S. soybeans
and would lead to a significant increase in stocks in South
America.
At current price levels, the soybean market does not appear
to be fully reflecting South American production at the level
forecast by the USDA. Reports of increased costs and more
limited production financing in Brazil suggests that soybean
area may be a bit less than forecast. With soybean rust having
been a problem in Brazil the past two years, yield uncertainty
may persist well into the growing season this year. The fate
of that crop will determine if harvest price lows will hold
or if new lows will be established later in the year. There
appears to be more price uncertainty for soybeans than for
corn.
Issued by Darrel Good
Extension Economist
University of Illinois
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