Supported by the latest supply and demand report from the United States Department for Agriculture (USDA), the prices of corn and soybean are expected to fall by 15 to 25 percent by the end of the year, according to the forecast by Capital Economics.

According to the monthly “World Agriculture Supply and Demand” published by the USDA, the March estimates of the global corn balance show only a marginal decline of approximately 0.8 million tones. More importantly, corn production estimates for Argentina were unchanged while estimates for Brazil actually increased by 1 million tonnes. Capital Economics points out that the improvement in Brazilian production together with higher production in India has largely offset the impact of higher global consumption.

As a result, global stock-to-use ratio remained at the same level as last month, at 13 percent. So according to Capital Economics, based in part on recent USDA estimates, it is expected that the price of corn will fall to around 550 cents per bushel by the end of 2012.

Capital Economics does take note that the USDA report has highlighted a further deterioration of the global soybean balance, primarily due to drought-related damage to production in Argentina, Brazil and Paraguay. Despite higher acreage and recent improvement in the weather, the report projects that final yields will be substantially lower in this region, and consequently, the production estimates for these three regions will be lowered by a total of 6 million tonnes.

Muktadir Ur Rahman, Commodities Economist in Capital Economics, says this is expected to further strengthen soybean prices which will have a negative impact on consumption. As a result, the report expects global soybean consumption to fall by 3 million tonnes, offsetting half the decline in global production.

So it is estimated that the global soybean stock-to-use ratio will fall marginally, from 8.5 percent to 8 percent. But this is still higher than the levels seen in 2008 when prices averaged 1000 cents per bushel, which is the forecast by Capital Economics for the end of 2012 as well.