With the calendar turning to November, we will start to see more positioning for the monthly corn and soybean supply and demand report.
This report, due out today, will receive more attention than normal given the fact there was not a report in October.
The consensus is that yields will increase, especially for corn. More attention should be placed on the soybean yield, as anything below 42 bushels per acre will drop new crop-ending stocks into a critical level.
The question right now is how much corn yield will rise. Several analysts expect it to increase to a national average of 160 bushels per acre, and possibly more.
A yield this high would easily raise carryout to the 2-billion-bushel mark, even with a slight increase in demand or acre reduction.
A carryout this large would undoubtedly have a negative impact on corn values, but in the long term, that may be positive for the complex.
U.S. corn values are becoming more competitive in the global market, mainly with South America. Corn values need to dip to a level that buyers will become interested though, primarily the Asian market.
While these production numbers will be important, trade really needs to focus on demand. Some analysts believe we will see increases to ethanol and possible exports on corn in the November release.
There is also a belief that soybean exports and crush could be raised as well. Any changes to acres will also be worth noting.
At a point in the marketing year, when producers start looking at storing new crop grain versus selling, several factors need to be considered.
The main one is simple economics of storing a commodity including elevation, interest and supply and demand. Given the inverse we have seen in this year’s cash market, many producers have opted to sell new crop inventory rather than pay storage costs.
Another factor that needs to be considered when storing a commodity is quality. This year’s corn crop is lighter in test weight than what we have seen recently, and there are some concerns with this and how it will affect storage.
What is more of a worry is the high foreign material we are seeing in corn this year, and how that could cause issues later in the year if bins are not properly cored this fall.
There are also concerns with soybeans this year, as the moisture level of that crop is higher than what we have seen in recent years.
One of the greatest chances of a rally in the corn market may not come from traditional fundamentals. It’s believed that after the first of the year funds will be active buyers in the corn pit.
This is mainly due to corn values declining almost 40 percent in the past year, and are in over-sold territory. Given the state of today’s financial markets, betting on this buying activity is not a guarantee either.
We continue to see a premium paid for immediate ship deliveries across the Internal market, mainly for soybeans.
While many believe this is from a soybean shortage, that is not necessarily the case.
Crush margins remain quite positive through November, with most plants locking in between 60- and 70-cent-per-bushel profits.
Processors want to capture as much of this profit as possible, so they keep paying a premium for deliveries.
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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