WHILE the U.S. Department of Agriculture's highly anticipated June 30 "Grain Stocks" report was expected to provide a better glimpse of where U.S. commodity inventories stand, the 2014 crop production year is off to a good start and promises a record harvest.
"We have a fantastic crop right now. It is very reasonable to assume that we will meet USDA's trend yield estimate on the corn end," said Rich Nelson, chief strategist for Allendale Inc.
While some areas of Minnesota and northwestern Iowa will be affected by the recent rains, he said the vast majority of the Corn Belt is experiencing very good growing conditions right now.
"We will see a sharp drop in feed costs as the year progresses," Nelson predicted.
He said, as of right now, he expects December corn prices to decrease to $3.92/bu. and December soybeans to drop to the $10.00/bu. level, but in the immediate future, a tight supply of old-crop soybeans will sustain prices until August, when the 2014 soybean harvest begins in the southern U.S.
Jerry Gidel, chief feed grain analyst for Rice Dairy, said projections for the 2014 crops point to an adequate U.S. corn and soybean supply, which will hold corn prices near their current levels and decrease soybean prices as the new supply becomes available.
"Our demand structures have definitely been revised because of price levels this year," Gidel explained. "There are profits everywhere you look in the livestock industry now."
While porcine epidemic diarrhea virus (PEDV) has limited expansion in the hog industry, he thinks that issue will settle and keep feed demand on the rise over the next year. He also suggested that PEDV is probably one reason the U.S. lost a little on old-crop demand.
"Soybeans are a really interesting scenario," Gidel told Feedstuffs.
He predicted that the U.S. is not really going to get away from $500-per-ton soybean meal prices until the new soybean crop starts getting harvested. He also said he is cautious about the idea that soybean yields could exceed 45 bu. per acre.
"We've not really been able to get above 44 bu. per acre in the past," Gidel said. "Yield is the whole game on this thing.
"We're off to a great start on the corn side, but I wouldn't say we're off to a great start on the beans because of the wet conditions," he added. "Right now, the whole world, including USDA, seems to be betting on the fact that last year's soybean crop has to be bigger than the numbers they've been using."
Because he expects demand for soybean meal and soybeans to continue to climb, Gidel said even with a sizable crop, he doesn't really know if soybean meal prices will decrease much.
He also suggested that the U.S. will use up old-crop corn inventories because producers aren't selling right now, with prices hovering around the $4.00/bu. level. He said he thinks prices will continue to bounce around in the $4.00-5.50/bu. price range but also predicted that something will come along to cause prices to swing back toward the higher end of that price range.
Additionally, Gidel said ethanol will be a strong user of corn because there has been particularly robust export demand. Part of this, he suggested, is due to Brazil using most of its own product instead of exporting it.
Darrel Good, agricultural economist at the University of Illinois, also discussed the projected record-large corn crop and suggested a leveling off of corn consumption.
"We don't expect to see much expansion in feed use, ethanol or exports during the year ahead, and the net result would be some significant building of our stocks of corn during the upcoming marketing year," Good said. "That suggests corn prices will be lower than they have been in the last three years — something in the low $4.00 range for the new crop."
For the livestock sector, Good said the lower price levels mean there's an opportunity for very good profit margins again over the next 6-12 months as livestock prices stay generally high and feed prices remain lower.
Good emphasized that a very large soybean crop is expected and said it may be record large by a pretty good margin.
"This will allow us to start rebuilding inventory after being completely depleted and relying on the largest imports we've ever experienced," he added.
"We're making a transition from a very tight, high-priced soybean situation to a more abundant, lower-priced scenario on soybeans," Good said.
After averaging more than $14.00/bu. this year, he said he expects soybean prices to be closer to $11.00/bu. for the upcoming crop year.
"There is still time to go, but everything is off to a good start," Good concluded.