Trade continues to debate the soybean acreage estimate that was released in the June USDA outlook report.
In previous years with slow planting, soybean acres have had a tendency to increase as the marketing year progresses. This is from the fact that in such years, planting is still taking place while data is collected for USDA reports.
Given the planting pace that was released just prior to the June report being released, it is not out of the question we could see a larger soybean crop than what has predicted all growing season.
Not only are soybean acres being questioned in the United States, but in South America as well. Soybean values have dipped to a level in much of South America that soybean production was becoming questionable.
Currency values have also shifted in South America though, and it is now thought we may actually see an increase in soybean plantings, mainly in Brazil. This would help off-set any possible soybean acre losses in the United States.
We continue to see a wide range of yield estimates for this year’s corn crop. Several analysts are projecting a corn yield around the 152 bushels per acre mark. Given reported acres and current demand, this would put new crop corn carryout near the 1.3 billion-bushel level. While this is less than what the USDA is currently publishing for a carryout, it is still high enough that economists believe it will pressure new crop corn values from present ranges.
The question surrounding this is how far corn values may recede. At the present time corn buyers can secure needs from the Black Sea region at a 54-cent per bushel discount to the United States. This means U.S. new crop corn needs to retreat to the $5-per-bushel level just to be competitive.
It may have to dip even lower to sway buyers away from other origination points, however.
Corn is also finding pressure in the domestic market, where it is suffering from plateauing demand and the use of cheaper alternative grains, mainly feed wheat.
There is a concern in the market that the current inverse we are seeing in the soy complex may lead to cancellations of bookings.
An inverse is when the deferred months are lower in value than the spot market. As a result, some buyers may choose to buy out of current bookings, then book soybeans for delivery at a later date, likely for new crop.
While this seems negative, the fact the United States needs soybeans is alleviating the pressure it would normally put on the market.
It is becoming apparent the the U.S. will not meet its Renewable Fuel Standard set by the government. By the year 2022 the U.S. was supposed to produce 15 billion gallons of ethanol from corn, which is close to where production is now.
Advanced biofuel manufacturing was projected to reach 36 billion gallons by the same time, but this is unlikely to happen.
Much of the weather related focus in the market is now on summer forecasts. Updated summer weather outlooks remain favorable for crop production.
No extreme heat is in any of the outlooks, and the soil across much of the Corn Belt has a full charge of moisture.
Fall weather is quickly becoming more of an issue, and whether the U.S. will have a late harvest or not.
Many analysts claim the U.S. will in fact have a late harvest this year, which is quite likely. This is mostly for the Western Corn Belt though, as crops in the Eastern Corn Belt were planted in a timelier manner last spring.
These crops will likely be able to satisfy needs until the Western harvest begins. The greatest concern with a late harvest is in the interior market in the West, mainly for feed and ethanol production.
Karl Setzer is a commodity trading advisor/market analyst based in the West Bend office of MaxYield Cooperative. He can be reached at (800) 383-0003.
The opinions and views in this commentary are solely those of Karl Setzer. Data used for this commentary obtained from various sources believed to be accurate. This commentary is intended for informational purposes only and is not intended for developing specific commodity trading strategies. Any and all risk involved with commodity trading should be determined before establishing a futures position.
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