We are starting to see a gradual shift in market attitude.
For the past several months market attention has been focused on commodity demand. This has now shifted and we are seeing more emphasis on commodity supply.
In many cases this can change the market from being driven by sellers to being a buyer’s market.
Even though we have seen rains move through the Midwest recently, there remain concerns over drought-like conditions.
In Iowa, for example, topsoil is 75 percent short on moisture and subsoil is 80 percent short.
There are building concerns that unless widespread rains are received this fall, we could easily go into our next production season in a significant drought.
This would give the market more support if not for the larger crop estimates we are seeing this year, especially on corn.
While the data is not fresh, trade is still talking about the quarterly stocks numbers that were released at the end of September. It is quite possible that these may have been some of the most accurate stocks in a September report in the past several years.
This is from the fact harvest was later than in recent history, and little new crop grain was counted as old. This could easily set us up for higher stocks reports for the remainder of the marketing year.
Trade is becoming increasingly concerned with the slow export loadings we are seeing this marketing year. This is especially true for soybeans, where the U.S. market continues to find pressure from South America.
So far U.S. soybean loadings this marketing year trail last year by a large 54 percent. It would not be surprising to see the USDA start to alter its soybean demand numbers if loadings remain depressed.
Not only are cattle numbers causing confusion in future feed grain demand for corn, but so is competition from wheat.
The USDA currently pegs world feed wheat demand at 141 million metric tons. This compares to a normal wheat feeding figure of 120 million tons.
The actual volume of wheat that will be fed depends heavily on the price spread between that grain and corn though, and this is starting to favor the use of corn over wheat.
There are other grains and feed products that will compete with corn as well.
One of these is sorghum as that crop is forecast to be nearly 70 million bushels more than what the USDA projected in September.
The United States is also expected to see an increase in distiller’s dried grain production and use this coming year.
Even if these products do not make their way into the feed market, the threat of them doing so will limit corn futures potential.
We continue to see private analysts release their U.S. corn and soybean carryout estimates for both this year and next.
For corn, most privates have this year’s carryout at 2 billion bushels and believe this will increase to almost 3 billion bushels next year.
The projected balance sheets on soybeans are tighter, but large enough to ease worries over the need for rationing.
Analysts have this year’s soybean carryout at 190 million bushels, and believe it will grow to a comfortable 400 million by the end of 2015.
None of these estimates are what would be considered friendly for trade.
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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