Economist looks beyond October production forecasts for corn and soybeans
At 10.706 billion bushels, the USDA's October forecast of the U.S. corn crop was about 100 million bushels larger than the average trade guess and about equal to the September forecast. The October soybean forecast, at 2.86 billion bushels, was about 90 million bushels larger than the average trade guess and 126 million larger than the September forecast. Prices of both commodities increased immediately after the forecasts were released, according to University of Illinois agricultural economist Darrel Good.
"The positive response to what appeared to be neutral to negative production forecasts suggests that the market had priced in the risk of even larger production forecasts," Good said. "In addition, the USDA forecast year-ending stocks of both commodities to be near pipeline levels, and smaller than expected in the case of corn. In the case of soybeans, the projection of marketing-year consumption was increased by 150 million bushels. Some interpreted the increase as a reflection of stronger demand than had been previously forecast. However, the USDA also lowered the projection of the marketing-year average farm price by 75 cents per bushel, in a range of $14.25 to $16.25. It is unlikely that underlying soybean demand is much different than forecast last month. Instead, the increase in the supply of soybeans (shift in the supply curve) should result in the supply and consumption equilibrium occurring at a higher level of consumption and a lower average price than projected last month. The projection of corn consumption was reduced by 100 million bushels, acknowledging that total consumption will be limited by the small crop and smaller-than-expected stocks of old crop corn. The projection of the marketing year average price was reduced by only 10 cents from the September forecast, in a range of $7.10 to $8.50," Good said.
The USDA will release new yield and production forecasts on Nov. 9. Good said that some variation from the October forecasts should be expected, with history suggesting a slightly lower yield forecast for corn and a slightly higher forecast for soybeans.
"In the previous 30 years, the U.S. average corn yield forecast declined in September and again in October, as it did this year, in seven years," Good said. "The November yield forecast was below the October forecast in five of those seven years. The decline in the forecast ranged from 1.5 to 7.2 (1993) bushels and averaged 3.2 bushels. In four of the five years with a lower yield forecast in November, the yield estimate was even lower in January. For the two years that saw a yield increase in November, the increases were very small, 0.4 and 0.1 bushel.
"In the previous 30 years, the forecast of the U.S. average soybean yield declined in September and increased in October, as was the case this year, in seven years. In six of those seven years, the November yield forecast exceeded the October forecast. The average increase was 0.5 bushel, in a range of 0.2 to 0.9 bushel. The final yield estimate released in January was above the November forecast in four of those six years. The January yield estimate was above the October forecast in all six years," Good said.
In addition to the new yield forecasts, there will be some interest in the forecast of the acreage of corn harvested for grain in the November USDA report.
Good quoted the October report forecast acreage harvested for grain at 87.721 million acres, 9.225 million less than acreage planted for all purposes. "That difference (mostly silage) is above the previous five-year average of 7.2 million acres, but less than the 9.467 million acres in the comparable drought year of 1988 and the 11.082 million acres in 1980. Widespread reports of corn abandoned or harvested for silage this year had resulted in the expectation for the difference between acreage planted and harvested for grain to be larger than the current forecast," he said.
While the November production forecasts will provide a clearer picture of the availability of corn and soybeans, Good said that prices will now take direction primarily from the ongoing rate of consumption.
Good said, "The strong pace of soybean exports and export sales continue, and the corn export program remains weak. For corn, however, considerable uncertainty about the pace of feed and residual use will persist until the Dec. 1 stocks estimate is available in the second week of January. It seems unlikely that the pace of feeding has yet been reduced to the level forecast by the USDA. Consumption in that category is forecast at only 4.15 billion bushels, 412 million below the official estimate for the past year.
"However, last year's consumption is likely understated due to the availability of larger-than-normal quantities of new-crop corn," Good said. "Similarly, part of the consumption that will be reported during the current year may have been used last year. Prices of both commodities should be well supported until rationing has been confirmed."