Darrel Good
Darrel Good
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Similar to corn, USDA soybean production forecasts had the largest impact on soybean futures prices in August, with recent price reactions appearing somewhat larger than in the past.
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The production intentions of hog producers will be of particular interest. The report will reveal whether producers' modest expansion plans have changed as a result of an extended period of relatively low feed prices.
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Current world production and demand prospects, however, seem to be relatively more favorable for corn than for soybeans.
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The USDA generates crop production forecasts based on estimates of planted and harvested acreage and two types of yield indications -- a farmer-reported survey and objective measurements.
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South American soybean production prospects will be one of the more important market factors for the next three months.
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However, if bird flu results in a permanent reduction in world poultry production, an increase in red meat production might eventually be required, resulting in increased feed consumption in the long term. Domestic demand prospects also remain strong due to increasing livestock production and expanding ethanol production. These developments should support increased corn consumption well beyond the 2005-06 marketing year.
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The market will closely monitor planting progress, weather and weather forecasts, and weekly crop condition reports as they become available in order to judge 2006 production prospects. These factors will also provide producers with valuable information for gauging new crop pricing opportunities. The lesson of a year ago is that the weekly crop condition ratings are very valuable in judging U.S. average yield prospects.
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The magnitude of the increase will have implications for the total area available to plant the spring-seeded crops such as corn and soybeans. The debate about how rising production costs will affect corn and soybean acreage decisions will continue into the spring of the year.
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Based on current conditions, however, it appears that the soybean prices need to be at a level to discourage a large increase in U.S. acreage in 2006.
appears billion corn crop forecast implies market means obviously ration sensitive smaller stocks trading vice
A stocks-to-use ration of 8.8 percent, then, means 2006-07 year-ending stocks of 1.047 billion bushels, implying a crop of 9.966 billion bushels. That is, the market appears to be trading a 2006 corn crop that is 1.146 billion bushels, or 10.3 percent, smaller than the 2005 crop. That calculation is obviously sensitive to the forecast of use. A smaller forecast of use implies a smaller crop and vice versa.
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A trend yield near 150 bushels, then, would produce a 2006 crop of 10.92 billion bushels.
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There appeared to be no trend in the size or direction of forecast errors over the study period.
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Based on the relationship between the stocks-to-use ratio and price since 1998-99, a price of $2.51 implies a 2006-07 year-ending stocks-to-use ratio of 8.8 percent. In comparison, the current projection of the stocks-to-use ratio for the 2005-06 marketing year is 22.4 percent.
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The price strength has been a little surprising given the magnitude of the surplus in U.S. corn inventories. However, over the past 32 years, the central Illinois cash price has never established a marketing year high in February, suggesting that even higher prices might be expected sometime over the next six months.