April 9, 2004

USDA Expects Continued Strong Demand For Corn, Soybeans

Robust demand continues to eat away at old-crop supplies of corn and soybeans, underscoring the need for big crops this fall, particularly in corn.
 
In Thursday's U.S. Department of Agriculture supply and demand report, U.S. ending stocks were trimmed to 115 million bushels for soybeans, down from 125 million bushels in March and to 856 million for corn, down from 901 million bushels.
 
"The report on the surface is slightly supportive. We're seeing the decline in ending stocks.... In corn it was anticipated with the strong ethanol production. The message to the U.S. farmer is the U.S. and world stocks are very tight and it presents a tremendous opportunity to plant corn, soybeans and spring wheat," said Brian Basting, commodity researcher with Advance Trading Inc.
 
Based on the bullish findings in the report, Jerry Gidel, analyst at North American Risk Management Services Inc., sees corn opening up 3 to 5 cents higher and soybeans up 5 to 10 cents higher.
 
Both analysts spoke at a press conference sponsored by the Chicago Board of Trade after the release of the USDA figures.
 
Ethanol demand continues to grow as new plants come on line and more are planned, Gidel said. The rising energy costs across the board also help ethanol. He called the USDA's ending stocks estimate at 856 million "on target."
 
Gidel said it was aggressive on the USDA's part to knock down the soybean ending stocks after maintaining a 125 million bushel level for the past few months. He also noted with interest the cut in the residual category, which is something usually not touched.
 
With soybeans resting at $10 levels for old-crop, the question remains whether that double-digit price has begun the rationing process. So far foreign and domestic demand remains robust for U.S. soybeans. It's possible that has started to occur, but it's impossible to pinpoint exactly where it is until the market has started to turn, Gidel said.
 
The cut in Brazil and Argentina's soy crops was expected, but the USDA remains above the private estimates for Brazil's crop, which range from 50 million metric tons to 53 million tons. The USDA put Brazil's soybean crop at 56 million tons from 59.5 million in Thursday's report. The 1.5 million ton slice in Argentina's soybean production to 35 million tons was as expected, Gidel said. "Concerns over South America are going to lessen. Their harvest is at 55% and Argentina's is at 20%, so we'll see their supply entering the world markets," he said.
 
Both analysts noted spring weather now becomes the main focus for U.S. crops. Delays to corn planting will support new-crop prices as that crop needs all of its acreage to supply the strong demand.
 
Basting said if there are no planting delays and summer weather holds out, the big acreage planned for both corn and soybeans will likely lead to sharply lower new-crop prices. "The volatility we've seen will remain. What this means for producers is opportunity. We encourage them to take advance of new crop corn over $3, new crop soybeans over $7 and new crop wheat over $4," he said.