Corn harvest has started through the Delta region and is now working north.
As it progresses, yields are reportedly better than expected. The corn is high in moisture though, which is slowing harvest as the corn needs to be dried.
This is limiting how much new crop corn can flow into the supply line and supporting basis as it does.
As corn harvest moves north, grain terminals are starting to make preparations for incoming deliveries.
Given the widespread expectations of a record-sized corn harvest, the need for storage is becoming more of a market issue.
This is especially the case in the Eastern Corn Belt, where yields are expected to be well above average. Some of this issue will be tempered in the Western Corn Belt, where lower yields and ample on-farm storage will allow for easier handling of the grain flow.
There is a strong correlation between early August weather and final corn yields. The start of this August was cooler than normal, which is a good indication of elevated corn yields.
In fact, several similar years have seen record corn yields. One difference this year is soil moisture though, as some regions of the Corn Belt are lacking adequate rainfall.
The question in the market is how such a corn yield would impact the futures market.
The United States has a very good chance of producing more than 14 billion bushels of corn this year. Given current usage forecasts, this would leave new crop corn carryout close to 2 bb, if not slightly more.
Historically, this size of a carryout is associated with sub $4 corn futures.
Corn exports sales have increased in recent weeks though, and if they hold at their current pace, they could top projected totals by 50 million bushels and possibly more.
The question is if this will cut into corn-ending stocks, or merely compensate for declining domestic usage.
Ethanol manufacturing has slowed in recent weeks, and it is now possible total consumption will fall short of USDA expectations. The same is true for feed, where heavy wheat use continues to displace corn.
There is just as much uncertainty over actual soybean-ending stocks. Trade believes we could see actual soybean sales fall short of government projections, possibly as much as 15 mb from old crop sales being rolled to new crop.
While this seems like a minimal amount, it is still over 10 percent of projected ending stocks. As with corn, export sales may simply be off-set with domestic use, except domestic soybean use is running ahead of estimates on soybeans.
The harvest of Brazil’s second corn crop is progressing, and as it does, record yields are being reported.
Harvest of this second corn crop is just over 50 percent, and yields are averaging a record 100 bushels per acre.
These yields are the result of improved farming practices and near-perfect weather. It is now believed Brazil’s second corn crop will total 1.78 bb, up 15 percent from a year ago.
This large corn crop is generating some issues in Brazil. The main one is storage, since most facilities are still filled with this year’s record soybean crop.
Ongoing soybean exports are also causing a concern, as it means producers cannot get their grain into the global market.
As a result, we could see an increase in demand for U.S. corn until this situation is remedied.
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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