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The Agricultural Newsletter from the Federal Reserve Bank of Chicago Number 1892 September 1997 AgLetter RECORD SOYBEAN HARVEST EXPECTED Two reports released by the U.S. Department of Agriculture (USDA) in September—Crop Production and the World Agricultural Supply and Demand Estimates—provided a summary of expected grain and oilseed production and use in the U.S. as well as the rest of the world. The reports suggest that U.S. soybean production will reach a new high this fall, while the corn harvest is expected to be about the same as last year. While national production forecasts for corn and soybeans showed little change from the prior month, projections were trimmed somewhat for Seventh Federal Reserve District states. Nationally, corn production is projected at 9.27 billion bushels, only marginally less than last year. If achieved, it would mark the fourth time (all in this decade) that U.S. farmers produced a crop in excess of 9 billion bushels. In general, the steady production level is the product of a small year-over-year increase in the number of acres harvested and a modest decline in average yields. The number of acres to be harvested is projected at 74 million and is the most since 1985. The national average corn yield is expected to be near 125 bushels per acre, about 2 bushels less than last year. Anecdotal reports indicate, however, that corn (and soybean) yields may be more variable than usual across local geographic areas. In comparison, the soybean harvest is expected to reach a record level this year, thanks to a combination of relatively high yields and the large number of acres to be harvested. The most recent production estimate of 2.75 billion bushels is 15 percent larger than last year and nearly a tenth greater than the previous high set in 1994. The number of acres harvested is expected to be up by a tenth from last year and is the second largest on record. Furthermore, the average projected yield of 39 bushels per acre—if obtained—is 5 percent larger than last year and is exceeded only by the 41 bushels per acre achieved in 1994. Finally, it should be noted that the corn and soybean harvests are just getting underway in the Midwest, and the yield/production forecasts could move either way as the harvest progresses. At 2.51 billion bushels, the summer wheat harvest was up a tenth from last year and the largest since 1990. The year-over-year rise in production was spurred by a marginal increase in the number of acres harvested and a large gain in the average yield. The national average yield was estimated to be 39.5 bushels per acre, about a tenth larger than last year and tying the record set in 1990. Winter wheat production—up more than a fourth from the prior year—accounted for all the increase, offsetting a rather sharp decline in spring wheat production. Mirroring the national trend, this fall’s corn harvest in Seventh District states is expected to be similar to last year, with little adjustment in either acres harvested or average yield. But the anticipated year-over-year change among the individual District states is something of a mixed bag. Production levels in Illinois and Iowa are expected to drop 5 percent and 3 percent, respectively, from last year, while the other three states experience Corn and soybean production estimates Yield 1996 Production 1997* (bushels per acre) Corn Illinois Indiana Iowa Michigan Wisconsin 1995 1996 1997* ( - - - - million bushels- - - -) 136 123 138 94 111 127 122 140 110 126 1,130 599 1,402 250 348 1,469 670 1,718 216 333 1,397 714 1,673 253 391 District states 129.6 129.4 3,729 4,406 4,428 United States 127.1 125.2 7,374 9,293 9,268 40 38 44 28 37 43 42 49 40 44 378 197 407 60 34 399 204 416 47 32 428 225 510 76 42 Soybeans Illinois Indiana Iowa Michigan Wisconsin District states 40.4 44.8 1,076 1,098 1,281 United States 37.6 39.3 2,177 2,382 2,746 *USDA projection as of September 12. Source: U.S. Department of Agriculture. gains ranging from 6 percent in Indiana to 17 percent in both Michigan and Wisconsin. Since District corn (and soybean) production is dominated by Illinois and Iowa, the decline in those two states essentially offsets the gains in the other states. Interestingly, the large yearover-year production gains in Michigan and Wisconsin have differing explanations. Wisconsin crop farmers expect to see above-average yields this fall, while farmers in Michigan look for a return to a more normal situation after last year’s disappointing yields. In contrast to corn, District soybean production is projected to register a sharp year-over-year gain of 17 percent to reach record high. Annual increases are expected in all District states and range from 7 percent in Illinois to over 60 percent in Michigan. At this point, all District states except Illinois will likely bring in a record soybean harvest. In general, the gains are fueled by increases in both yields and harvested acres. Furthermore, all District states except Indiana are expected to combine a record number of soybean acres. With corn production expected to be steady when compared to last year, the year-over-year change in total supplies for the 1997/98 marketing year (September-August) is largely dictated by the change in initial stocks. Carryover stocks are expected to be more than double that of last year, yet are still relatively low by historical standards. However, the larger stocks will push total supplies up by about 5 percent from the previous year. Looking to the demand side, domestic use is expected to register a moderate increase from the prior year on the basis of gains in both livestock feeding and use in the food, seed, and industrial (FSI) category. The amount of corn used for FSI is projected to rise 5 percent, led by increased manufacture of high fructose corn syrup and ethanol. Furthermore, feed use is also expected to post a year-overyear gain of 5 percent as pork and poultry production expand. Overall, domestic use is projected at 7.33 billion bushels, a new high. In addition, foreign demand and improving export opportunities are expected to play a role in coming months. Foreign sales of U.S. corn are projected to rise 13 percent from last year, yet would remain nearly a tenth below the level of two years earlier. And while total use is not expected to reach a new high, the current projection indicates this would be only the second time it exceeded the 9 billion bushel mark. On balance, ending stocks are anticipated to decline about 8 percent to 864 million bushels. In comparison, ending stocks averaged 1.21 billion bushels earlier this decade, even when factoring in last year’s low level. Going into the 1997/98 marketing year, the initial level of soybean stocks is estimated to be a scant 115 million bushels, the lowest since 1977. But the record harvest will push supplies up by more than a tenth from the prior year. The ample supplies will be reflected in lower prices— compared to a year earlier—but will also encourage gains in both domestic disappearance and exports. The domestic crush (processing soybeans into meal and oil) is projected to post a moderate gain to a new high. The processing gains will be prompted by a modest year-overyear increase in the domestic use of meal and oil, and by proportionately larger gains in exports of these products. But the real news is soybean exports, which are off to a relatively fast start in the current marketing year (SeptemberAugust) and are expected to hit a new high at 950 million Soybean and wheat stocks are expected to rise relative to use percent 20 dollars per bushel 7.40 Ending stocks/use ratio (left scale) percent 40 dollars per bushel 4.80 Ending stocks/use ratio Soybean price (right scale) (left scale) Wheat price (right scale) 15 6.90 30 4.20 10 6.40 20 3.60 5 5.90 10 3.00 5.40 0 0 1990/91 ’91/92 ’92/93 ’93/94 ’94/95 ’95/96 year ending August 31 *Projected. Source: U.S. Department of Agriculture ’96/97 ’97/98* 2.40 1990/91 ’91/92 ’92/93 ’93/94 ’94/95 ’95/96 ’96/97 ’97/98* year ending May 31 Corn stocks/use projected to decline percent 28 dollars per bushel 3.60 Ending stocks/use ratio (left scale) 21 3.20 Corn price (right scale) 14 2.80 7 2.40 0 2.00 1990/91 ’91/92 ’92/93 ’93/94 ’94/95 ’95/96 year ending August 31 ’96/97 ’97/98* *Projected. Source: U.S. Department of Agriculture bushels. If achieved, this would mark only the third time soybean exports exceeded 900 million bushels (the other years were 1981 and 1982). Overall, the sizable soybean crop will more than offset demand and raise ending stocks to a somewhat more comfortable level of about 285 million bushels. Carryover wheat stocks going into the current marketing year (June-May) were much larger than a year earlier, and along with the production increase, pushed total supplies up a tenth from last year. Wheat imports— mostly from Canada—are projected to be at about the same level as the previous year and represent about 3 percent of available supplies. In comparison, utilization is expected to register a much more modest year-overyear gain of 3 percent, as a decline in domestic usage is offset by a strong increase in exports. But despite the anticipated gain, foreign sales are still relatively low compared to most of this decade. In sum, ending wheat stocks are projected to rise to the highest level since 1990. Viewed from a different prospective, the ratio of ending stocks to use is expected to be nearly 28 percent, considerably higher than the average of about 20 percent from the prior six years. Trade prospects for U.S. grains and oilseeds are highly dependent on foreign production prospects and consumption patterns. Corn producers in the U.S. stand to benefit in the upcoming year from an expected decline in foreign coarse grain production, especially in Argentina, China, and Canada. Despite the potential decline, consumption is projected to rise, pulling ending world stocks of coarse grains lower next year. While potentially lower stocks are not a problem at the moment, they would become much more significant if production shortfalls occur next year. This concern has been heightened by the persistence of the El Nino weather pattern, which continues to hold the potential to change world production patterns. In contrast to coarse grains, ending stocks of wheat and oilseeds are expected to rise next year. World wheat production is projected to reach a record level in the 1997/98 crop year (partially due to a record crop in China, the worlds largest wheat producer) that will outstrip consumption and push ending world stocks higher. Yet the outlook for U.S. wheat exports improved because other major exporters experienced production problems. In particular, the USDA estimated the Australian and Canadian wheat harvests to be down by a third and a fifth, respectively, from the prior year. Furthermore, world oilseed production is expected to rise about 7 percent this year and push ending world stocks up by 40 percent. The USDA also forecast average prices for the 1997/98 marketing year. Though corn prices will receive some support from the gains in domestic use and the improved export situation, the midpoint of the USDA’s estimated range is $2.65 per bushel, 5 cents less than the average for the prior year. In contrast, soybean and wheat prices will be pressured by larger domestic supplies. The midpoint of the estimated range for soybean prices is $6.15, about 17 percent below the average of the past marketing year. The midrange of the wheat price forecast is $3.45, a fifth lower than the prior year. Mike A. Singer AgLetter (ISSN 1080-8639) is published monthly by the Research Department of the Federal Reserve Bank of Chicago. It is prepared by Gary L. Benjamin, economic adviser and vice president, Mike A. Singer, economist, and members of the Bank’s Research Department, and is distributed free of charge by the Bank’s Public Information Center. The information used in the preparation of this publication is obtained from sources considered reliable, but its use does not constitute an endorsement of its accuracy or intent by the Federal Reserve Bank of Chicago. To subscribe, please write or telephone: Public Information Center Federal Reserve Bank of Chicago P.O. Box 834 Chicago, IL 60690-0834 Tel. no. 312-322-5111 Fax no. 312-322-5515 Ag Letter is also available on the World Wide Web at http://www.frbchi.org. SELECTED AGRICULTURAL ECONOMIC INDICATORS Percent change from Latest period Value Prior period Year ago Two years ago Prices received by farmers (index, 1990–92=100) Crops (index, 1990–92=100) Corn ($ per bu.) Hay ($ per ton) Soybeans ($ per bu.) Wheat ($ per bu.) Livestock and products (index, 1990–92=100) Barrows and gilts ($ per cwt.) Steers and heifers ($ per cwt.) Milk ($ per cwt.) Eggs (¢ per doz.) August August August August August August August August August August August 107 116 2.47 101.00 7.10 3.49 99 56.70 65.80 12.70 63.5 0.0 1.8 1.6 2.6 –5.7 8.0 –1.0 –5.0 0.6 4.1 –3.3 –9 –13 –43 9 –9 –24 –5 –6 2 –20 –14 4 1 –6 23 22 –18 8 14 7 2 1 Consumer prices (index, 1982–84=100) Food August August 161 158 0.2 0.4 2 3 5 6 Production or stocks Corn stocks (mil. bu.) Soybean stocks (mil. bu.) Wheat stocks (mil. bu.) Beef production (bil. lb.) Pork production (bil. lb.) Milk production* (bil. lb.) June 1 June 1 June 1 July July August 2,495 499 444 2.26 1.35 11.3 N.A. N.A. N.A. 5.8 3.1 –1.6 45 –20 18 3 1 4 –27 –37 –12 8 4 4 Receipts from farm marketings (mil. dol.) Crops** Livestock Government payments May May May May 13,286 5,727 7,539 20 –8.6 –13.6 –4.3 –28.6 –3 –7 2 –79 –3 –3 4 –97 Agricultural exports (mil. dol.) Corn (mil. bu.) Soybeans (mil. bu.) Wheat (mil. bu.) June June June June 4,132 113 32 68 –5.4 –7.7 –21.0 35.4 –6 –18 –38 –11 4 –33 –9 –17 Farm machinery sales (units) Tractors, over 40 HP 40 to 100 HP 100 HP or more Combines August August August August 4,896 3,560 1,336 647 –11.5 –10.2 –14.8 –25.6 8 7 12 1 13 12 17 –14 N.A. Not applicable *20 selected states. **Includes net CCC loans. AgLetter is printed on recycled paper using soy-based inks Return service requested Federal Reserve Bank of Chicago Public Information Center P.O. Box 834 Chicago, Illinois 60690-0834 312-322-5111 AgLetter PRESORTED FIRST-CLASS MAIL ZIP + 4 BARCODED U.S. POSTAGE PAID CHICAGO, ILLINOIS PERMIT NO. 1942
