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Supply/Demand concerns

Agriculture.com Staff 02/28/2008 @ 2:25pm

The USDA's supply/demand tables issued during last week's Outlook Forum seemed to provide answers for a few days. But now it seems there are more questions than answers.

First and foremost, there are acreage questions. Between all the major crops, the USDA forecasts more total acres to be planted. Some of this comes from expiring CRP acres (from last fall) and some comes from increased double-cropping of wheat and soybeans. The USDA also believes more acres will come from fallow, hay, pasture, etc.

The fact the acreage math is not easy has people on edge. The market is acting more like it needs more acres of everything-corn, wheat, soybeans, even cotton and other more minor crops.

The market would like more acres simply because demand is currently so strong. This leads to a discussion about how analysts estimate the demand side of the tables.

Some analysts construct supply/demand tables that can not come true. To educate their clients about the tightness in the soybean market, for example, they may make a table with a negative number for carryout. Of course, that can not happen. But, these analysts are trying to say the situation can’t continue on its present course. Price will reduce demand and carryout will eventually become a more rational number.

The USDA seems to take a more pragmatic approach to building supply/demand tables. For example, it looks like USDA analysts think around 160 million bushels of soybeans is about pipeline supply-the minimum requirement for the end of the year. Using that number, the analysts do the math backwards to make the demand numbers (crush, exports) fit. Once again, if demand is strong at the beginning of the crop year, high prices will be needed. Then exports or crush will be reduced and supply and demand will be back in balance.

The risk of loss in trading commodities can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial situation.

The USDA's supply/demand tables issued during last week's Outlook Forum seemed to provide answers for a few days. But now it seems there are more questions than answers.

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