Corn, soybean demand improving
URBANA, Ill. (University of Illinois) – Soybean and, to some extent, corn prices continue to recover from the recent lows.
July 2016 soybean futures increased $2 per bushel, or 23 percent, from the close on March 1 to the close on May 13.
July 2016 corn futures increased 35 cents, or 10 percent, from the close on March 31 to the close on May 13.
According to a University of Illinois agricultural economist, soybean basis levels have generally weakened over the past 2.5 months so that cash prices have increased less than futures prices.
Corn basis has been variable, but generally steady since late March.
“A number of factors have contributed to the price rally,” said Darrel Good. “The most recent support came from the U.S. Department of Agriculture’s May World Agricultural Supply and Demand Estimates report.
“As expected, that report contained smaller forecasts of the size of the South American corn and soybean crops. The forecast of combined soybean production in Brazil and Argentina was reduced by almost 130 million bushels, or just over 2 percent, from the April forecast.
Fewer bushels found
“The forecast of combined corn production for the two countries was reduced by 157 million bushels, or nearly 4 percent. It seems likely that the forecast size of the Brazilian corn crop will decline further as drought conditions continue to intensify in northern growing areas, even as southern areas receive heavy rainfall.”
The lower South American production forecasts contribute to prospects for larger U.S. corn and soybean exports during the current marketing year as well as during the 2016-17 marketing year.
The USDA now forecasts U.S. corn exports during the current year at 1.725 billion bushels, or 75 million bushels more than forecast last month.
“The pace of shipments and new sales certainly support the larger forecast,” Good said.
Exports during the 2016-17 marketing year are projected at 1.9 billion bushels, slightly above the average magnitude of exports of the past 41 years.
Soybean exports during the current year are forecast at 1.74 billion bushels, 35 million bushels above the April projection. Exports during the 2016-17 marketing year are projected at 1.88 bb, 42 mb larger than the record exports during the 2014-15 marketing year.
The large forecast for 2016-17 reflects expectations for only a modest increase in South American soybean production in 2017 and continued strong import demand from China. Chinese soybean imports from all sources during the upcoming marketing year are forecast at 3.2 billion bushels, up from the record 3.05 billion expected this year.
China is expected to account for 64 percent of total world soybean imports, representing 28 percent of the soybeans produced outside of China.
In addition to larger exports, domestic consumption of corn and soybeans is expected to increase during the 2016-17 marketing year. The domestic soybean crush is expected to increase by 35 mb from the record crush of 1.88 bb during the current marketing year on the strength of expanding livestock production and slightly larger exports due to less competition from South America.
Corn used for ethanol during the upcoming year is forecast at 5.3 bb, up 50 mb expected for the current year.
“The increase reflects expectations of continued increases in domestic gasoline consumption and less competition from sorghum as an ethanol feedstock,” Good said.
Feed and residual use of corn is projected at a nine-year high of 5.55 bb, 300 mb above the forecast for the current year.
The large forecast reflects expectations of abundant corn supplies, increasing livestock production, and a small reduction in feed use of other grains.
With planted acreage at the level indicated in USDA’s March 31, Prospective Plantings report and yields at trend levels, the May WASDE report forecast that year-ending stocks of soybeans will decline from 400 mb this year to 305 mb next year.
Year-ending stocks of corn are expected to increase from 1.8 to 2.15 bb. Projections for both crops are much smaller than generally expected.
“With demand for U.S. corn and soybeans expected to be bolstered by smaller crops in South America, robust Chinese demand for soybeans, and expanding livestock production in the United States, the focus will once again turn back to the prospective size of U.S. crops,” Good said. “The first issue is the magnitude of planted acreage, with two unsettled questions.
The first is whether the magnitude of total acreage of spring-planted crops will exceed intentions reported in March.
The second is about the magnitude of corn and soybean acreage. With soybean prices increasing more than corn prices since the planting intentions survey was conducted, and with the delay in corn planting in some areas, expectations are for there to be some switching from corn to soybeans.
The most likely areas for that to happen are where corn planting is expected to be the most delayed, including Ohio and Indiana.
Planting intention for those two states were reported at 9.35 million acres for corn and 10.2 million acres for soybeans.
The USDA’s Crop Progress report indicated that only 22 percent of those 19.55 million acres had been planted as of May 8.
“Within a fairly wide range of acreage, the size of the 2016 U.S. corn and soybean crops will mostly depend on the nature of the growing season and average yields,” Good said. “For much of the winter and early spring, the consensus seemed to be that without a weather issue this summer that resulted in below-trend yields, corn and soybean prices would continue to decline.
“If the USDA’s demand projections are correct, it now seems appropriate to reverse that thinking. Without large U.S. crops this year, prices will likely move higher.”
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