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KARL SETZER

By Staff | Mar 23, 2012

Soybean futures are taking support from a predominant source of fundamental strength, this being global supply concerns.

Firms are predicting world soybean stocks to drop to a three-year low this year at just 74.1 million metric tons.

This is from a 7.2 percent decline in production due to adverse weather in South America. The global soybean crop this year is now projected at 246.5 mmt, which is under projected usage.

Simple production will also have a large impact on what corn values do in the next year.

Trend, or average, corn yield for the United States this year is projected at 164 bushels per acre. There is a possibility that with benign growing conditions corn yield could increase 10 percent as in 2004, which would put it near 180 bushels per acre.

In all reality, even a slight dip from trend would still be enough production to satisfy current demand estimates.

One factor that continues to be debated on corn production this year is seed availability. Most seed companies claim there is an adequate supply of seed corn in the U.S. this year to plant even the highest number of expected acres.

This coming from the fact seed can be brought into the United States from South America if needed. The real concern may be if any sizable amount of reseeding needs to be done.

The International Grain Council believes world corn production will fall short of consumption in the 2012/13 marketing year.

World corn production for this year is projected at 880 mmt, which is actually greater than last year’s 864 mmt.

Corn demand is on a steady rise though, and is forecast to reach 884 mmt this coming year.

The greatest increase in global corn demand is expected to come from feed, with that demand set to rise from 490 mmt this year to 502 mmt next year.

Some traders and analysts have overlooked the possibility of a rally in soybean futures from this point.

This is from the increase in competition from South America in the world market and a slower export program than a year ago.

While these facts are true, the United States is walking a very fine line with soybean balance sheets, and a yield anything less than 44 bushels per acre puts us in rationing mode.

Even just the possibility of this scenario unfolding is enough to help keep a floor under soybean values.

The wild card in soybean futures potential this year is South America.

Given the early and rapid soybean harvest that is taking place in South America, there is plenty of time to double crop many fields.

While this is usually done with corn, higher futures may encourage a second crop of soybeans instead. This is possible even in regions where two consecutive crops of soybeans are discouraged due to disease outbreaks.

More interest is being placed on the fast approaching planting season in the Midwest. One of the primary stories leading into this season is what should be expected for weather conditions.

It is interesting to note that according to history, when U.S. winters are warmer and drier than normal, there is a 70 percent chance of the spring and summer being the same way.

The real question is where these conditions take place, as it is possible they could totally miss the heart of the Corn Belt and not affect production at all.

Another question in the market as we approach the spring planting season is acreage.

The most publicized of the acreage battles taking place at the current time is between corn and soybeans, but there are others as well.

One is between corn and alfalfa. While this does not seem like it would be a major factor in corn production, given the record hay prices being seen in the United States, we could easily see acreage slippage in fringe areas of the Corn Belt.

Karl Setzer is a commodity trading advisor and market analyst at MaxYield Cooperative. He can contacted at ksetzer@maxyieldcooperative.com.

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