Trade continues to look at new crop stocks-to-use and make price projections. The stocks-to-use ratio on new crop corn is currently 15.8 percent, which is far from a bullish amount.
A ratio this large historically equates to futures of $4, which is not out of the question in today’s market. Trade is well aware that trend yields are used in these projections, and actual corn yield has been well below that in the past few seasons.
The stocks-to-use ratio on new crop soybeans is much more favorable for prices.
This ratio is currently projected at 5.5 percent, a historically tight level. This stocks ratio has been associated with $13 soybean futures. While this is below today’s market, it is still a highly favorable price level compared to that of new crop corn.
These stocks-to-use ratios will be affected by several influences this year though, and will change several times. One of the most dominating factors for price discovery will be weather. Over the past several weeks we have seen drought improvement in the U.S., mainly in the Eastern Corn Belt. Climatologists claim that it will still take a considerable amount of time to rebuild the nation’s soil moisture, as much as two years in some regions.
Old crop U.S. corn continues to see significant pressure in the world market. Global corn importers can currently go to Ukraine for corn at a $1.65 discount to the United States.
Argentina is also putting corn into the global market at a sharp discount to the U.S.
This price differential has not only cut U.S. corn exports, but caused an increase in corn import interest as well.
Not only is U.S. corn struggling to build global demand, but domestic demand as well. While feed demand has been solid this year, it is doubtful it can compensate for losses in ethanol manufacturing. In 2011 the U.S. ethanol industry consumed 5 billion bushels of corn. Since then, profit margins have collapsed in the industry, and many plants have closed or slowed manufacturing. At today’s consumption rate, the industry may only use 3.9 bb of corn this year.
Old crop soybean demand is much higher, both domestically and globally. Soybean exports are already approaching 100 percent of the year’s total estimates with six months left to go. Soybean crush is also elevated from estimates, with yearly crushing approaching 750 mb. This is 10 percent ahead of last years crush volume at this time, while annual crush is forecast to decline 5 percent.
The United States is starting to see more pressure in the global soybean market. The majority of this is coming from harvest activity in South America, as Brazil is reporting soybean harvest at 30 percent complete.
This is a point where exports tend to increase as domestic storage is back at an adequate level. The focus will now be more on logistics to see if Brazil can load these soybeans in a timely manner, or if the United States still needs to make exports.
The precipitation events that have moved across the U.S. in the past weeks have started to improve soil conditions. While most of this precipitation has fallen in the form of snow, there has been rain in the systems as well.
The precipitation events may not be enough to greatly improve dry soils, but they may prevent conditions from getting worse.
As a result, trade is taking this as an indication there is adequate risk premium in futures values for now.
Karl Setzer is a commodity trading advisor and market analyst at MaxYield Cooperative. He can contacted at firstname.lastname@example.org.
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