Now that the calendar has turned to June, we will see more concerns over unplanted corn acres across the Corn Belt.
While a definite yield loss is practically impossible to determine, it is likely we will see production loss on corn that is planted in June.
The real question is what impact this situation will have on acres. While we could see a shift in some acres from corn to soybeans, given the recent decline in demand, we could still see adequate carryout on both commodities if yields on planted acres are high enough.
There are many parallels being drawn between this year and that of 1993 in the futures market.
The spring of 1993 was record wet across the Midwest in many states, and the U.S. eventually lost 3.2 million acres of corn ground. Final corn yield that year was down 17 percent from trend.
At the present time, the market appears to have a 150-bushel-per-acre yield factored into new crop corn, which would be a much smaller reduction from trend.
The real question in the possible acreage loss is how many we may see shift from one crop to another.
Data from the firm F.C. Stone indicates we could see up to 6 million corn acres shift to soybeans, and still have a carryout of more than 1 billion bushels of new crop corn.
This is being based off current demand. If even a shift of half these acres would take place, it would mean more than enough corn and soybeans both to pressure futures from current levels.
There are price forecasters who believe new crop corn values could average close to $4.50 per bushel. While this would seem negative for the corn market, the long-term reaction may be supportive. A corn value that low would likely bring profitability back for many corn processors, mainly ethanol.
Livestock producers would also benefit from cheaper corn, but it takes longer to build a cattle herd than most other demand uses.
We have recently seen an increase in Chinese corn demand in the global market, and this may only increase in the near future. Global corn values have eroded to a point where China can make imports more economically than using domestic reserves.
China’s government has issued 7.2 million metric tons of corn import quotas for this marketing year, but this could easily be increased if economics continue to favor imports. Some economists believe China’s corn imports could actually be twice ts projected volume.
There are two factors that could limit China’s corn-buying interest from the United States though. One is China’s economy, as we have recently seen concerns build over the state of the country’s fiscal viability.
Another is China, as well as all other corn-buying countries, can shop elsewhere, such as the Black Sea, which cuts transit costs, especially into Asia.
It is possible that the old crop soybean inventory at the end of the marketing year will not be as low as forecast. While we have in fact seen elevated sales of soybeans this marketing year, but actual shipments are down from estimates. This means we could see larger old crop carryout than the 125 million bushels being projected by the USDA.
While it would take a considerable build in soybean carryout to get back to a comfortable level, the simple fact we are not cutting stocks even further is negative to the market.
Karl Setzer is a commodity trading advisor and market analyst at MaxYield Cooperative. He can contacted at email@example.com.
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