Corn and soybean markets got a positive jolt last week when the U.S. Department of Agriculture’s (USDA) monthly supply/demand report showed that demand for the crops was strengthening and that overall stockpiles are expected to be lower than earlier estimates.

"The low prices that we are seeing now appear to be really stimulating demand," said Chad Hart, Iowa State University (ISU) Extension grain market specialist. "There was not a weak spot on the demand side in this report. All sectors — feed use, biofuels and exports — were stronger."

That added demand is projected to pull down estimated supplies into the next marketing year, even with normal harvests, said Dale Durchholz, senior market analyst for AgriVisor.

"The ending stocks in this report, especially for soybeans, were well below the trade estimates," he said. "This was a very exciting report because we are moving to a demand focus."

The USDA report, officially called the World Agricultural Sup­ply and Demand Estimates, sent soybean and corn prices sharply higher after it was released May 10.

The nearby May soybean future contract jumped nearly 60 cents a bushels on the day the report was released before falling back later in the week on profit taking. Corn futures also rose during the week, as prices gained back some of the momentum that was lost with projections for very high corn acreage for the 2016 growing season.

Specifically, the USDA report showed total U.S. soybean domestic and export use at 3.925 billion bushels for the 2016-17 marketing year, which begins Oct. 1. That’s up nearly 5 percent from the projection of 3.75 billion bushels for the current marketing year.

Diminished stockpiles

The new report projected the stockpile of soybeans would fall to 305 million bushels by the end of the 2016-17 marketing year, down nearly 24 percent from the carryover projection for the current year.

"It looks like we’ll really be on the knife’s edge with soybean supplies," Durchholz said.

In corn, the supply/demand estimates raised projections for feed use, exports and corn used to make ethanol. The ending corn stockpile after the 2016-17 marketing year is still expected to rise because farmers are in the process of planting sharply higher acreages this spring.

But, ISU’s Hart said, the big crops won’t be as burdensome on prices if the higher demand projections are on track.

South American issues

Along with increased domestic demand, the report appeared to reflect higher exports caused by agronomic and logistical problems that are vexing farmers in Brazil and Argentina, Hart said. In addition, the U.S. dollar has been weakening some, making U.S. crop exports more competitive on the world markets, he said.

What the USDA supply/demand report can’t project is any weather problems that reduce the size of the U.S. harvests, Durchholz said. It’s clear that the El Nino weather pattern is fading quickly, but it’s too soon to know whether it will be quickly replaced by a La Nina pattern that often leads to yield reductions and higher prices, he said.