February 23, 2004



China Holds Key To US Corn, Soybean Supply


China's corn and soybean buying pattern remains an essential component in determining the ultimate supply-demand scenario, two U.S. Department of Agriculture analysts said on Friday.


The end-stock projections reflect what remains after domestic use and exports are subtracted from the U.S. supply. But they are subject to change during the next few months because of the many variables involved.


US corn stocks for 2004/05 are projected to fall 80 million bushels to 821 million bushels from 2003/04, reflecting strong demand for U.S. corn to meet corn-based ethanol production and exports, the USDA said at its annual agriculture outlook forum.


Less export competition is expected from China and South Africa. Feed demand is declining due to a drop in beef production and the use of other feed grains, the USDA said.


But unknowns in China's export policy and the impact of Asia's bird flu outbreak on livestock feed needs could change the U.S. demand equation for corn, analysts said.


"Every day we seem to find a bit more (Asian flu). The impact of that we don't know clearly at this time. It is something that will be followed very closely," said William Tierney, commodity analyst with USDA.


A deadly strain of bird flu has hit Asia, killing at least 22 people. Two domestic cats in Thailand have also died of the same virus, alarming scientists who now fear the disease can spread as easily between species as it has between countries.


The drop in U.S. corn stocks comes at the same time the USDA said it expects American farmers to harvest a record crop of 10.410 billion bushels in 2004.


U.S. 2004/05 soybean end-stocks were seen rising to 210 million bushels. That would be up 18 percent from the 2003/04 estimate of 125 million bushels, the lowest in 27 years.


The jump in stocks will also reflect a record soybean crop of 2.930 billion bushels in 2004, the USDA said.


Domestic soybean use should be strong at 1.790 billion bushels, the first increase since 2001/02. Soybean exports were also expected to rise to 1.060 billion bushels from 900 million bushels in 2003/04, the USDA said.


The rise in U.S. soy exports assumes robust demand from China, another USDA analyst said.


"This is heavily dependent on the development of China's own (livestock) exports," said John Wade, a senior economist with USDA. "If China continues to encounter barriers in the development of livestock exports, market forces will reduce China's grain demand."


Al Ambrose, a vice president with Minnesota-based grains marketer CHS Inc., said soy prices will go higher because of high export and domestic demand.


"We just don't have enough soybeans and feed stocks in this country" to satisfy demand through this year's harvest, Ambrose told the conference.


Ambrose said that U.S. soybean exports would have to drop to 850 million bushels in 2003/04 to have enough soybeans for domestic use, well below the USDA's export estimate of 900 million bushels.


The USDA forecast U.S. farmers will plant 80.5 million acres of corn and 74.5 million acres of soybeans this spring -- both up from last year.


"We believe there's some positive response on the part of farmers to high farm income. They made money last year," Tierney said. "They would respond by planting more acres or ... plant every acre that's available."


U.S. 2004/05 wheat stocks were also forecast to grow due to a drop in exports, the USDA said. U.S. wheat production was estimated to fall by 217 million bushels to 2.120 billion bushels because of fewer wheat acres and lower crop yields.

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