Tight U.S. crop supplies, strong demand continue

WASHINGTON — Tight supplies and strong demand mean prices for corn and soybeans are likely to remain high for the foreseeable future, according to American Farm Bureau Federation economic analysis of two recent government reports.

Soybeans

“The degree to which soybean supplies are tight is probably the biggest surprise in this report,” Terry Francl, American Farm Bureau Federation senior economist, said.

The Agriculture Department’s World Agricultural Supply and Demand Estimates (WASDE) report for May projects 2008/09 soybean ending stocks of just 185 million bushels, some 85 million bushels less than the average pre-report estimate. A crop production report also was released May 9.

“Soybean stocks are projected to drop even though it’s believed there will be an 11 million-acre increase in planted and harvested acreage in 2008/09 and a fairly respectable yield of 42 bushels an acre over that time period,” Francl said.

The World Agricultural Outlook Board also predicts the amount of soybeans crushed for domestic use slightly above the record 2007/08 level of 1.84 billion bushels and dropped the 2008/09 soybean export projection by 100 million bushels.

“The long and short of it is that beans will remain in tight supply for another year,” Francl said.

Corn

The report, released May 9, also showed a slight reduction — of a bushel an acre — in corn yield estimates for the current crop year compared to a report published in February. The latest estimate predicts corn yields of 153.9 bushels an acre.

“The corn yield projection was probably the most watched-for number in this report,” Francl said. “However, given the slow plantings to date and the likelihood of further delays based on weather forecasts, many observers had thought that number should be reduced by 3 bushels an acre or perhaps more.”

Francl said the WASDE report continues to illustrate trends that have been occurring over the past few years.

“With the exception of wheat, supply and demand balances, particularly for corn and beans, will remain tight and prices high. Moreover, despite the high crop prices of the past year or so, it is not clear that demand rationing has truly begun.

“Consequently, it’s unclear how high prices will go — perhaps $7 a bushel for corn and $15 a bushel for beans — before the rationing process truly sets in. I sense we are getting close to that point, but we are not there quite yet.”

The WASDE report released each May provides Francl and others with their first peeks at the outlook for the 2008/09 crop year, based on current conditions on the ground.

Francl said most of the projections in the May report were close to analysts’ pre-report estimates.

“Although less eye-catching than diminishing soybean stocks and the corn yield number, there were a couple changes of consequence on the corn demand side of the balance sheet,” Francl said.

For example, the demand for corn to be used for ethanol was reduced by 100 million bushels in both the 2007/08 and 2008/09 crop years.

“Less corn will be sold to ethanol plants because construction of new plants has not been as rapid as anticipated,” he explained.

Wheat

Wheat production is expected to grow in the U.S. and elsewhere, according to another recent government report. This year’s U.S. wheat crop is estimated to total 2.4 billion bushels, up 325 million bushels or 16 percent from 2007.

Likewise, world wheat production is estimated to be a record 656 million tons, up 8 percent from 2007. As a result, for the first time in years, it appears world wheat stocks will be up to 124 millions tons, a 13 percent increase.

“This may mark a turn around from nearly a decade when the demand for wheat outweighed production, and stocks were constantly drawn down,” Francl said.

Cotton

For U.S. cotton, projections for 2008/09 indicate sharply lower production of only 14.5 million bales, a decrease of 25 percent and a 43 percent draw down in carryover stocks.

“This is due to the continuing decline in cotton acreage, which is projected to be down this year by about 1.4 million acres from 2007,” Francl said.

Cotton acreage is off 5.9 million acres or 39 percent from 2006. “Cotton is having an increasing difficult time providing the level of returns that farmers can get from either corn or soybeans, the two biggest competitors for the land on which cotton has typically been grown in the past,” he added.