USDA's May forecast that the United States will produce record corn and soybean crops this year might at first glance be gloomy for prices. But according to an analyst with Strategic Trading Advisors, there's still way too much uncertainty to know where prices are headed in the long term.
USDA's forecasts for a 2.9 billion bushel soybean crop and a 10.4 billion bushel corn crop are based on the fact that much of the 2004 U.S. crop has been planted on time or earlier and assumes optimum growing conditions from here on out.
Six weeks ago, things did not look so rosy for producers, said Jody Lawrence, speaking at the Ag Market Network's May teleconference.
“We came off the driest April on record in Indiana and a good part of Illinois, to a May where there were almost perfectly timed rains, and outside of a cool snap, things have been nearly ideal to this point. There has been very little replanting despite all the rains we've gotten. A majority of the crop is going to benefit from being in the ground early.
“Most years, in early May, the crop is not in nearly this good a shape, and you're dealing with a long-term look that comes down to weather during pollination, depending on where you are.”
This early optimism is one reason USDA is projecting above-trend-line yields for both corn and soybeans. This includes an average 40-bushel yield for soybeans on 74 million acres.
But any kind of trouble could send prices higher because demand is very strong and stocks still tight for both crops.
“If you lose only 1 bushel per acre in soybeans, we're in no better shape (in carryover) than we are right now with old crop beans trading between $9.60 and $10.50,” Lawrence said. “I'm not convinced that we have seen the highs for the year. I don't think we are going to be able to walk through this entire year without a weather scare.”
While the possibility of a bumper crop definitely exists, don't “get caught up in a ‘sky is falling’ undertow of the funds selling,” Lawrence said. “You have to be patient and look at the big picture. There is intense pressure on agricultural producers to raise bumper crops every year to keep pace with demand.”
Lawrence noted that in 2003 “1.5 billion bushels were lost between China, the United States and South America. Did that start the golden age of $2.70 plus corn and $6.50 plus beans? I think you could certainly make the argument that for the next two years, corn, wheat and beans should be very well supported.”
Lawrence added that the most optimistic weather outlook needed for a bumper corn crop could pressure December corn to $2.60 to $2.70 later in the year. “But we could produce a record corn crop of 10.2 billion bushels, and corn will still have to ration demand. And I don't think anybody truly knows how much ethanol we're going to produce this year.
“Beans at best, if everything goes well, is a $6.60 to $6.80 item. If you put a loss in there, November beans could be right where July beans have been. You get any kind of problems in China this year, you could go well over $11.”
The Ag Market Network is a joint effort of the Extension Services, Mississippi Farm Bureau and Rosenthal-Collins in Memphis.