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CME: 'New Normal' Prices for Corn, Soybean Meal

by 5m Editor
12 May 2010, at 6:51am

US - USDA’s monthly <em>Crop Production</em> and <em>World Agricultural Supply and Demand Estimates</em>, released this morning, confirm the outlook for large crops this year and resulting higher year-end stocks, write Steve Meyer and Len Steiner.

Those are quite logically leading to lower forecasted prices for this crop year. Some highlights of the report are:

  • A forecasted new record corn crop for the second year in a row. Higher corn acreage and an above-trend forecast yield result in a 2010 crop forecast of 13.37 billion bushels. USDA is using the 31 March Prospective Plantings number for now even though record-fast planting may well result in more than the expected 88.8 million acres. USDA’s forecast 163.5 bushels per acre would be the second highest yield on record. It is higher than the long-term trend yield, again due to fast planting this spring that has reduced the potential for frost problems in the fall. Now if we can just get more heat units this summer than we did during last year’s record-cool growing season.
  • A 245 million bushel increase in total corn usage in 2011 — with 200 million of that increase going to ethanol production. Exports are forecast to be 100 million bushels higher as well, leaving total usage at 13.3 billion bushels, another record. Feed and residual are projected to fall slightly.

  • Projected carryout of 1.738 billion bu. for 2010, 161 million lower than the April estimate and well below the 1.853 billion bu. expected, on average, by analysts in the pre-report survey. That shortfall and a forecast 1.818 carryout for 2011 (also lower than the pre-report estimate of 1.884 billion bu.) helped CME Group Corn futures rally today by 5 to 6-3/4 cents per bu.

  • USDA made few changes to its forecasts for soybean usage and year-end stocks for 2010. They did provide specific price forecasts instead of range in this WASDE, pegging seasonaverage prices of beans, meal and oil at $9.50/bushel, $36/ cwt. and $295/ton, respectively.
  • A forecast for the second largest soybean crop on record at 3.31 billion bushels based on acreage for the Prospective Plantings report and the long-term trend yield. When combined with lower projected crushings (down 5.5 per cent to 1.64 billion bushels) and exports (down 5.9 per cent to 1.35 billion bushels), this large crop is projected to nearly double year-end inventories to 365 million bushels. That level will more than double the year-end stocks-to-usage ratio to 11.6 per cent. USDA is forecasting lower soybean and soybean meal prices but steady soybean oil prices versus 2009-10.

What do these numbers mean for livestock and poultry producers? Steady feed costs provided weather conditions this summer are conducive to normal development of this early-planted corn crop and a soybean crop that should be among the earliest-ever planted as well. The crop year has gone swimmingly (probably shouldn’t use the word while it is raining!) so far but timely rain and sufficient heat units are still needed for these bumper crop forecasts to be realised. And readers need to remember that $3.50 corn and $250 soybean meal are by no means low prices. It now appears they are the “new normal” prices that we will deal with for the foreseeable future but they are not low enough to support an expansion of output in an of themselves. With this year’s supply reductions and consequent rally of cattle and hog prices, though, these price levels should provide some badly-needed profits to all meat protein sectors.