West Kentucky Grain Market Project
Monthly Market Update for April 2005
April 15, 2005
Grain markets have now had some time to evaluate the USDA?s 1st quarter Grain Stocks Report for the 2004-05 marketing year, the Prospective Plantings Report for 2005 spring planted crops and the April World Agriculture Supply and Demand Estimates (WASDE) Report. With these reports out of the way markets can begin to focus on spring planting conditions in the U.S.
As expected, the Grain Stocks Report indicated a disappointing rate of use for corn for the first quarter of the marketing year, in both the domestic market and export market. As a result of this report USDA lowered their forecast (April WASDE) of total corn disappearance for the 2004-05 marketing year and therefore increased their estimate of ending U.S. corn stocks by 160 million bushels to a slightly burdensome level of 2.215 billion bushels. Clearly, the U.S. will go into the 2005-06 corn marketing year, which begins September 1st, 2005, with a large cushion of corn supply. This situation will serve to somewhat moderate the impacts of any forecast production problems.
However, the Prospective Plantings Report surprised grain traders by indicating that U.S. farmers plan to increase their acres devoted to corn production by only 500,000 acres not the often forecast level of 2-3 million acres. If this first prediction of 81.4 million acres is reasonably accurate -- the final actual planted number can easily change by 1-2 million acres, or more, (plus or minus) from the intentions number -- acres harvested for grain should total about 73.8 to 74 million acres. This compares to last year's harvested acreage figure for corn for grain production of 73.6 million acres.
There is no known way to perfectly predict in advance what U.S. corn yield will turn out to be in 2005. No one correctly anticipated last year's incredible record of 160.4 bu/acre and likewise no one correctly anticipated the very poor yield of 129.3 bu/acre recorded for the 2002 harvest. Using trend yields is as good as any method for a first case "what-if" kind of analysis. Trend-line yield is dependent on the method and data used to make the calculation. It is likely that different market analysts will use estimates ranging from 142 to 145 bushels/acre. These are all defensible and they all measure the past.
U.S. corn for grain production for 2005 using the above numbers is currently expected to be in a range of 10.5 billion bushels to 10.75 billion bushels if average yield is approximately equal to trend-line yield. At the same time most grain market analysts and USDA are talking about disappearance of corn for the 2005-06 marketing year in the range of 10.7 to 11.0 billion bushels. Therefore, with trend-line yield -- which essentially equals or slightly exceeds the second best ever U.S. corn yield -- use will likely outpace production and stocks will be drawn down slightly.
If yields are reduced below trend-line yield it is highly probable that production will clearly be less than use. This situation will provide support to the corn market until at least early to mid July or perhaps somewhat longer depending on how the planting and growing season unfolds. However, grain traders are unlikely to quickly forget about last year's phenomenal yield and production of over 11.8 billion bushels on somewhat less acres than are currently expected to be planted this year. If that is not enough unknowns to ponder consider that price action in corn will also be dependent on any impact Asian Soybean Rust (ASR) might have on the grain market complex.
For soybeans, the Grain Stocks Report was friendly; U.S. stocks at the end of the 1st quarter were less than expected probably because USDA is still overestimating the size of last fall?s harvest. In addition, cumulative and weekly U.S. soybean exports are well ahead of the levels needed to reach USDA's current forecast for total annual 2004-05 exports. The rapid pace of exports alone was sufficient for USDA to increase their estimate of total use of U.S. soybeans and once again cut their projection of ending soybean stocks for the 2004-05 marketing year which ends August 31, 2005.
However, stocks are still pegged at 375 million bushels which is the largest level of ending U.S. soybean stocks since 1986 and the first time since 1998 (stocks of 348 million bushels) that stocks have exceeded 300 million bushels. Even though some market analysts believe final actual U.S. soybean ending stocks might be only 350 million bushels, as in corn, the projected abundant ending stock level will serve to soften any market reaction to adverse production news over the growing season.
In contrast to the outlook for corn production for 2005, the soybean situation implies a high probability of U.S. soybean production exceeding soybean use during the 2005-06 marketing year unless a meaningful production problem occurs. The Prospective Plantings Report indicated that U.S. farmers intend to plant 73.91 million acres to soybeans this spring. This is down from last year's record level of 75.2 million acres of soybeans.
A normal harvested to planted ratio yields a harvested acres figure of about 72.8 million acres of soybeans. At trend yield of 41 to perhaps 42.5 bu/acre results in U.S. soybean production this fall in a range of 2.985 to 3.09 billion bushels. Most soybean market analysts seem to believe total use of U.S. soybeans during the 2005-06 marketing year will fall in a range of 2.85 billion bushels to perhaps as high as 2.925 billion bushels. This implies soybean carryover stocks will increase by August 31, 2006 over this year's current high number.
The wheat situation is one of somewhat better exports and domestic feed use than originally forecast. Therefore, current WASDE numbers indicate slightly lower ending stocks than originally expected for U.S. wheat as the U.S. 2005 harvest approaches. However, spring wheat producers appear to have planted more acres than had been anticipated and weekly crop progress and conditions reports indicate a wheat crop that is doing very well. These factors and the recent weakness in corn and soybean prices have contributed to a reversal in wheat prices.
Global wheat production and use have been record large in the marketing year about to end May 31, 2005. Expectations are that global production in the 2005-06 marketing year will not match the current year?s records. This expectation and the lower U.S. beginning wheat stocks should help underpin U.S. wheat prices, especially soft red winter wheat which suffered a sharp drop in acres seeded last fall. However, if the U.S. winter wheat crop turns out as good as it currently appears to be, wheat prices may experience some more weakness as harvest gets underway. This should be only a modest drop from current prices and should not last too long, especially for excellent quality soft red winter wheat.
The current global and U.S. supply/demand situation and outlook for grains and soybeans is one of record supplies and use and building carryover stock levels. Most market analysts predict that global production is unlikely to match last year's phenomenal level. However, at this point in time that is simply an expectation not a reality. Maximum production uncertainty is the current state of affairs. Therefore, as mentioned last month, the main pricing goal for most farmers should be to obtain minimum prices above county marketing assistance loan rates if and when they exist and retain the ability to capture at least some portion of any rallies above that level.
For More Information
The West Kentucky Grain Marketing Project: Monthly Market Update is edited by Steve Riggins. You may contact him by e-mail at sriggins@uky.edu.