October 8, 2008

US corn and soy prices have dropped sharply over the past two weeks, reflecting the larger-than-expected stocks in grain storage.

As of September 1, soy inventory reached 205 million bushels, about 55 million more than expected after the Census Bureau revealed that soy crushing in August was 15 million tonnes lower than expected, according to the USDA's September Grain Stocks report.

This large year-ending inventory is a 91 million bushel increase from the 2007 crop, which reflects a higher acreage and yield than estimated.

September 1 corn inventory was estimated at 1.6 billion bushels, 48 million bushels larger than expected in USDA's September supply and demand report. Summer corn feed may be less than expected due to feeding of cheaper wheat. Larger corn and soy production estimations by private forecasters and an accelerating harvest pace have also pressurised prices.

Meanwhile, current export pace of corn is very slow, with the USDA expecting a 17.5 percent on-year decline in shipments, while current export commitments are 37-percent less than a year ago. The pace of soy export commitments increased 4 percent but the USDA has projected a 13.4-percent decline for the year. The lower soy crush in August also suggests a weakening demand for soymeal.

There is a concern that the meltdown in US credit markets may threaten the domestic and export demand for US agricultural commodities. A global financial crisis may lead to lower demand for meat and livestock feed.

Current corn and soy prices project tight margins for producers for the 2009 crop, especially those with high land costs. Prices are not expected to be high enough to lead to acreage increase next year, but the increase may be unneeded if demand weakens sufficiently.