While acreage, demand and weather continue to dominate the news in the corn and soybean markets, one interesting sidebar is what will happen when and if the United States runs out of soybeans before the new crop becomes available.
According to USDA, soybean stocks as of June 1 were estimated at 410 million bushels. While the number, announced June 30, was about 15 million to 20 million over the average expectation, “It's still not a big cushion for the remaining three months of this crop year,” said Gerry Gidel, an analyst with Midland Research, during a Chicago Board of Trade press briefing.
“We still have a very strong need for supplies until about mid-September when we have an adequate amount of new crop supplies in the South into the system.”
Joe Victor, vice president/marketing, Allendale Incorporated, said running out is just a matter of when. “At an average fourth quarter usage of 469 million bushels, we would have a negative 59 million bushels by the end of the year.”
But Victor believes that crushing facilities will shut down when soybean prices become too unprofitable for them to crush beans and/or when supplies run out. At that time, “we don't look for beans to be coming into the United States, we look for meal to be coming into the United States.
“So I would caution people with old crop beans because eventually they are going to end up being new crop beans. I wouldn't wait around forever thinking you're going to get a gold mine on Sept. 1.
“Longer-term, new crop beans might not have much of a post-harvest rally if we have any kind of better weather in South America,” Victor added. “USDA has them up there with some really unbelievable numbers.
“So I would urge soybean producers to not get too optimistic,” Victor said. “Even with the smaller acreage in the United States, we're going to have more than adequate beans on a worldwide basis. For new crop beans, $7 is probably a practical top. Downside risk in new crop beans is definitely under $6, possibly in the $5.50 area.”
According to USDA's June 30 acreage report, U.S. farmers planted 74.8 million acres of soybeans this spring, down from the March estimate of 75.4 million acres. U.S. farmers also planted 80.9 million acres to corn, up from the March estimate of 79 million acres, and 59.8 million acres to wheat, up from the March estimate of 59.4 million acres.
USDA's estimate of corn acres was 700,000 acres to 1 million acres over the average trade expectation, with increases in Illinois, Iowa, Minnesota and Nebraska. At least some of the increase in corn acreage is from a 1.4 million-acres decline in grain sorghum acreage from last year.
With higher acreage in corn, there is now less importance on whether or not growers achieve trend-line yields, according to Gidel. “But weather at pollination will still be big market factor.”
Victor doesn't anticipate significant changes to either soybean or corn acreage in subsequent USDA reports. “With 80 million acres of corn, 91.5 percent harvested acres, and trend yields of 145 bushels per acre, you're looking at 10.74 billion-bushel crop. A 10.5 billion-bushel usage will give you projected end stocks for 2004-05 of approximately 950 million bushels.”
However, “according to NASS, 20 percent of the 18 major producing states have a moisture index that is excessively wet or flooded. We think harvested acreage should be taken down another 3 percent.”
Corn demand is still quite strong, noted Gidel. “We had the third consecutive record for quarterly use of corn this year. Even though we'll see sales slow down, it's not going to take much to spark interest in U.S. corn, especially with the lack of competition from China.”
Gidel expects prices for corn to range from a low of $2.54 December to $3 to $3.10. “From a global perspective, usage still outpaces production for wheat and corn. Here in the United States, the market will be more basis-sensitive than futures-sensitive.”
He sees a price range for soybeans of $6.40 to $6.60 on the low side and $7 to $7.50 on the high side. “Let's remember where we were about a year ago. The crops looked great, then someone turned the water off in August. But with a reduced acreage number now versus March, some potential for dryness, and ending stocks of 115 million bushels, all it will take is two to three weeks of drier than normal weather and the market will explode again.”