August 19, 2004

Forecast Of Record US Corn Harvest Threatens Soybean Exports
 

According to the latest US Department of Agriculture report, corn production in the US is expected to peak at 10.92 billion bushels, which is a massive 288 million bushel increase on last month's forecast of 10.78 billion bushels.

If the good weather persists, this would be the largest US corn crop on record and increase the potential for US exports of the grain.

Farmers expect to harvest 73.4 million acres of corn for grain, virtually unchanged from June but up 3% from 2003. USDA estimates for feed and residual use of corn are up 75 million bushels from last month and 50 million bushels from last year.

Since the announcement of the new forecast, corn futures prices have decreased. This is expected to encourage vast purchases of the crop in lieu of the more expensive soybean. Corn used for animal feed would be a cheaper alternative to soybeans, which have seen a massive increase in prices in the past year due to demand from China.

However, recent competition from feed wheat, made available cheaply on the market due to a bumper harvest in the Black Sea area, has seen demand for soybeans fall. With another alternative available in the form of corn, it is more than likely that the demand for soybeans will drop further, opening a gap in the market that will be met by the timely rise in US corn exports.

Although the USDA has not predicted an increase in exports yet, many analysts believe a bumper crop will guarantee this.

A London-based analyst says, "If they have a lot more grain than they did last year, the chances are that they will export it. You do have countries like China that are trying to build up stocks of grain although exactly how much they need is a mystery. They appear to be slowing down imports of soybeans at the moment, as demand has softened. But the situation may change if a large amount of corn becomes available on the market. It all depends on the pricing for the grain."

However, there are other factors to complicate the situation, such as the USDA forecast for soybean production which, at 2.87 billion bushels, is an increase of 19% as compared with 2003. Although this is lower than what traders had expected, it would still make the harvest the second-largest US soybean harvest on record. This could lead to a resurgence in exports of the grain if the price is favourable enough to compete with the feed wheat and corn.

Competition is seen in the form of larger crops of coarse grain from China, Ukraine, Canada, the EU-25, as well as countries in Eastern Europe and in the Balkans.

Global production is estimated to be a record 956 million tons and registers a 6% increase on the previous year's total.