Corn, Soybean Prices Continue to Struggle

Corn prices have traded in a sideways pattern since mid-October, but are currently in the lower end of the recent range, says a University of Illinois agricultural economist.  

“Soybean prices have trended lower over the past month with January futures now back near the early October lows,” says Darrel Good.

Corn prices received little support from last week’s USDA Crop Production report containing a lower forecast for the size of the U.S. crop. The U.S. average corn yield is projected at an eight-year low of 146.7 bushels, 1.4 bushels below the October forecast, he says.

“The potentially positive price impact of that reduction was muted by USDA’s judgment that feed and residual use of corn will only reach 4.6 billion bushels during the current marketing year, 100 million bushels below the October forecast,” he says.

The forecast is 192 million bushels below the surprisingly small estimate for the previous marketing year, he adds.

“The lower forecast for the current year was not offset by an increase in the projection for feed use of other grains. The projection of domestic soybean meal feeding was also reduced marginally,” he says.

Good says the lower projection of feed and residual use of corn reflects prospects for reduced broiler production as placements continue to run 6 to 8 percent below the pace of a year ago. He adds that, although it is not cited as a factor for the reduction, the recent slowdown in exports of distiller’s grain may boost domestic feeding of that product.

According to Good, the pace of domestic feed and residual use of corn will be revealed in the USDA’s December 1 Grain Stocks report to be released on Jan. 12. The experience of the past two years, however, suggests that the level of domestic feed and residual use may remain uncertain until the Sept. 1, 2012 stocks estimate is released.

“Ethanol production during the first 10 weeks of the 2011-12 marketing year was about 2.2 percent larger than during the same period of a year ago,” Good says.

“While uncertainty persists about ethanol demand and production without the blenders’ tax credit in 2012, the current pace of production supports the USDA projection of 5 billion bushels of corn used for ethanol this year,” he says.

Ethanol exports, particularly to Brazil, are a major part of the current increase in ethanol production. Those exports are vulnerable in the longer term if world sugar production rebounds and sugar prices moderate, he noted.

“The USDA still expects U.S. corn exports during the current marketing to be at a nine-year low of 1.6 billion bushels. Exports have been less than 1.6 billion bushels only six times in the past 36 years. Through Nov. 10, the pace of weekly export inspections continued to run well below the average pace needed to reach the USDA projection,” he says.

The Census Bureau corn export estimate for September was not substantially larger than the USDA inspection estimate. The level of outstanding sales is larger than that of a year ago, but new sales were small in the latest reporting week ended Nov. 3, he says.

The USDA’s November forecast of the U.S. average soybean yield of 41.3 bushels was 0.2 bushels below the October forecast and 2.3 bushels below the 2010 average, he says.

“The forecast represents the lowest yield since 2008 and the second lowest since 2003. Like corn, the lower yield and production forecast generated little price strength due to a 50-million-bushel reduction in the forecast of exports and a 35-million-bushel increase in the forecast of year-ending stocks,” he says.

He adds that the pace of U.S. soybean exports remains well below that of last year. However, the anemic pace of new sales in the last two weeks of October was followed by large new sales in the week ended Nov. 3.

“Production prospects remain generally favorable in South America, although USDA made a modest reduction of the forecast of acreage in Argentina and Paraguay. Those reductions were offset by larger yield forecasts for Brazil and Paraguay,” he says.