Dr. Matthew Roberts, Agricultural, Environmental and Development Economics, The Ohio State University
Corn yield is currently forecast at 152.8 bu/ac nationwide. This is somewhat higher than the midpoint of estimates leading up to the report, and it has caused the corn market to extend the losses that started with the June report. With the 152.8 bu/ac yield, and 85.4 million acres harvested, a 13.05 billion bushel harvest is forecast. For Ohio, the forecast is for a 143 bu/ac yield this year, 16 bu/ac less than 2006.
The increased projected yield led to increases in usage, as well. Forecasted feed demand for the 07/08 marketing year was increased by 50 million bushels, and owing to higher availability and lower global production, exports were forecasted to rise by 150 million bushels over the previous estimate, to 2.15 billion bushels, compared to 2.1 billion bushels for the 06/07 marketing year. The expected increase in US exports is being driven primarily by the severe drought in Southeastern Europe, which has reduced expected European Union-27and Former Soviet Union coarse grain production by almost 7 million metric tons.
As long as August moisture is sufficient, all indications are that the domestic soybean harvest will be adequate this fall. However, the US, and the globe, cannot plan for another 300 million bushel decline of soybean inventories. New crop 2008 soybean futures are already displaying the markets' unease with '08 prospects. November 2008 soybean futures are currently trading at $9.05/bu and December 2008 corn contracts are trading at $4.01/bu, a 2.25:1 soy-to-corn ratio. In January/February of this year, new crop corn averaged $4.08 and soybeans averaged $7.96, for a ratio of under 2:1, which led to a loss of 11.4 million acres of soybeans and a gain of 14.6 million acres of corn. Many analysts are already predicting that corn will lose up to 2 million acres in '08. I think corn's willingness to do so is entirely contingent on the level of '07/08 ending stocks. If we do have an '07 yield near 150 bu/ac, then corn may cede a few acres.
Another major contributor to the acreage allocation discussion is the number of acres planted to soybeans this fall in South America. While soybean prices have rallied this summer, the fall in the US Dollar has offset some of those gains. At this point, it appears that South American plantings will rise 5% or less over last year, which is unlikely to significantly alter the balance of the global soybean market.
For at least the next year, the market will remain very tight, and much more attention than usual will be paid to deferred futures contract prices, such as harvest '08 and '09. From a marketing standpoint, I expect that this attention will be very clearly felt soon after harvest this year when attention turns to '08 harvest. Because no crops will have ample inventories by the end of the 07/08 marketing year, prices for '08 harvest will stay strong, which should create a "floor" for the 2007 crop prices, but the large number of bushels being harvested and stored this fall will nonetheless create heavy pressure on cash prices.
Therefore, feed buying opportunities will be best in November and December, when storage pressure will be highest. But by mid-January at the latest, the market will likely start the process of allocating acres for '08 plantings, a process that will probably see corn futures running up to $4.15/bu and soybeans to $9.50/bu After the March 31 report, all prices, but especially soybeans, should see price declines lasting into June, when weather worries begin.