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Grain, soy stocks pressure prices

Despite worries over Asian soybean rust and expected lower soybean plantings this season, USDA analysts say large carryin stocks from 2004's record crop will keep ending stocks high and result in a season average price of only $4.50 per bushel.

That's down 60 cents from USDA's earlier mid-point forecast, Jerry Norton, agricultural economist for the Farm Service Agent, said in presenting the report of the Wheat, Feed Grains, and Oilseeds Interagency Commodity Estimates Committees at the Agricultural Outlook Forum at Arlington, Va.

“Soybean ending stocks for 2005-06 are forecast at 410 million bushels,” he said. That's down 30 million from the level projected for 2004-05, but would still be the second highest since 1985-86. “Despite limited South American expansion, record global soybean stocks expected for the beginning of the 2005-06 marketing year will keep supplies large. With only moderate growth in global protein demand, the U.S. season average soybean price is expected to be the lowest since 2001-02.”

The early outlook for the three major U.S. field crops — wheat, corn, and soybeans — is shaped by large domestic supplies, lower prices, and strong world competition, Norton said.

With normal weather and trend yields, 2005 corn production is expected to drop from last year's record level. On the heels of record crops in 2003 and 2004, growth in supply has outpaced demand growth, boosting ending stocks to 2 billion bushels. Despite sharply lower winter wheat seedings, particularly in the Mid-South states and the Ohio River area, trend yields are expected to keep 2005 production just below the 2004 level. With lower wheat feed use and weaker export prospects, 2005-06 ending stocks are expected to remain almost unchanged from last year.

“Maintaining large carryover stocks through 2005-06 will hold down prices for corn, soybeans, and wheat, and will add to farm program payments,” Norton said.

Prices for corn and soybeans are down substantially from last year and with current soybean and corn prices close to loan rates, record farm income in 2004 will support large 2005 plants. Nonetheless, total area is likely to fall below last year's 215.8 million acres.

Last year's three-crop acreage was boosted by prices that were at the highest levels since the mid-1990s, and exceptionally favorable spring weather allowed for a record pace in corn planting and added to 2004 total acreage.

Unique to this year's outlook, Norton said, is the sharp drop in winter wheat area. At 41.6 million acres, planted area is the lowest since 2001. Seeded area in 11 soft red winter wheat-producing states bordering the Mississippi and Ohio Rivers is down 1.5 million acres, for a total that is the lowest in the 97 years reported on the National Agricultural Statistics Service online database.

Also unique to the 2004 outlook — although its impact remains uncertain — is the potential for Asian soybean rust over much of the southern soybean areas.

Wheat acreage, which has been trending downward gradually, is expected to drop 1.7 million acres to 58 million, the lowest since 1972.

“Despite prices that are expected to stay above the $2.75 per bushel national average loan rate, spring wheat seedings are not expected to increase because of competition from other crops,” Norton said.

Corn acreage is expected to increase 1.1 million acres from 2004, to 82 million, which would be the highest since 1985. Strong yield gains have bolstered corn returns in recent years, he said.

“Despite expectations for prices to be below the loan rate in 2005, other factors will provide incentives to plant corn,” including the soybean rust threat and lower wheat seedings. “Corn is also expected to gain acres marginally over soybeans due to more corn-on-corn plantings in the Corn Belt and concerns about higher soybean production costs.

“If soybeans are at $5 per bushel, it becomes almost unprofitable to grow 25-bushel or less soybeans if they have to be sprayed twice.”

Farm program incentives for corn have strengthened relative to soybeans under the 2002 farm bill, and with corn and soybean prices expected at or below loan rates, the loan rates “will have the most impact on acreage since 2001.”

Soybean acreage for 2005 is projected at 73 million, down 2.2 million from last year's record. Southern acreage expanded 1.4 million acres in 2004 because producers could deliver new crop beans in August for more than $8 per bushel. With prices expected to fall well below loan rates net fall, these acres are expected to back into feed grains and cotton, Norton said.

Ethanol production is continuing to support corn, he noted. Corn for ethanol this year is expected to hit 1.5 billion bushels, another record. Although ethanol prices have declined and growth in 2005-06 is likely to limit production increases as existing plants run at lower rates of capacity.

The season average price of corn, Norton said, is expected to be $1.90 per bushel, 5 cents below USDA's earlier mid-point forecast.

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