The corn numbers in the June supply and demand report were bearish for trade.
Corn acres were basically unchanged at 89.5 million, and even though yield was cut by 1.5 bushels per acre, the United States should still have a record-sized corn crop of 14 billion bushels.
Given current usage, this production, and an old crop carryout of 769 mb, should leave the U.S. with 1.95 bb of new crop ending stocks. This was only 500,000 bushels less than what was projected in May.
The soybean numbers had a negative feel to them as well.
The USDA did not update its soybean acres, but did leave yield at 44.4 bushels per acre and crop size at 3.39 bb.
Usage was mostly unchanged on soybeans, leaving carryout the same as it was in May. Old crop soybean carryout is still 125 mb and new crop is 265 mb, which are not as bearish as the larger corn numbers are.
Brazilian officials are predicting a record year for corn production this growing season. Brazil is now forecast to produce 81.7 million metric tons of corn this year, up 11.9 percent from a year ago.
Much of this is coming from the second corn crop in Brazil, which has experienced mostly favorable growing conditions. This rise in production will lead to elevated exports and cheaper corn for the United States to contend with in the global market.
This increase in Brazilian corn production is not coming without some issues however.
The main one of these is logistics, and how Brazil will move this corn into a supply line that is already stressed from a large soybean crop.
This could easily push Brazils corn exports back to August, meaning the country could still be exporting corn when the U.S. harvest season starts.
As a result, the United States will need to remain more price competitive in the world market than ever before.
Forward sales of new crop soybeans in Brazil have been limited this marketing year. For the 2013-14 marketing year, soybean sales are just 5 percent of total production.
This compares to a normal volume of 40 percent by this time of the year. The lack of opportunity for Brazilian farmers to lock in profits is the primary reason for the low sales total.
One of the greatest concerns to Brazilian farmers at this time is the cost of transportation.
At the present time it costs a Brazilian farmer an average of $4 per bushel to transport soybeans from the field to an export terminal. This is a 50 percent increase over the previous transit rate.
Brazil’s government has pledged to build new storage facilities and improve transit lines, but hardly any improvements have been seen.
We continue to see the split in market attitude between old and new crop take place. The chances of depleting old crop reserves ahead of the new crop harvest are increasing due to the delays we have seen in planting.
This is especially the case in soybeans, where ending stocks were forecast to be at an absolute minimum to begin with.
While this has generated price rationing in the old crop contracts, expectations for robust new crop production have weighed on those values.
Country grain movement has again slowed, causing basis values to firm.
Producers have lost all interest in making new sales until their new crop production can be better determined.
It is quite possible that some old crop inventory will be needed to cover new crop sales.
It is also thought that we will see old crop values rally if we see any weather threat this growing season at all, which is totally possible.
Karl Setzer is a commodity trading advisor and market analyst at MaxYield Cooperative. He can contacted at email@example.com.
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