Trade is looking more closely at what we could see in the March 31 quarterly stocks report, mainly on corn, to see if domestic demand is in fact as high as reported.
There were thoughts on March 1 that U.S. corn inventory could have been as high as 7.2 billion compared to last year’s 5.4 billion bushels.
The last time March corn stocks were this high was in 2009 at 6.9 billion bushels. That year the United States had a corn carryout of 1.6 billion bushels compared to the 1.48 billion bushels being forecast this year.
What is just as interesting is where the corn is being held.
In December of 2013, 61 percent of the nation’s corn was held in on-farm storage. According to research from F.C. Stone, in 2009, this number had dipped to 59 percent by March.
Where the corn is held will have a significant impact on interior basis and how much commercials and processors will have to pay to encourage movement.
There is also a considerable amount of debate over future corn exports, and if they will in fact increase from current projections.
The European Union is on track to import 2 million tons more corn than what the USDA is currently projecting.
The E.U. is exporting a large volume of wheat, and will need to import corn to cover this void in the feed market.
At the same time trade expects to see a portion of the corn purchases China has on the books to be cancelled, making more grain available for other needs.
Two buyers of U.S. corn are standing out in particular.
Japan has already booked 7 million tons of U.S. corn compared to 4.5 million tons a year ago.
Mexico has also increased its corn demand with cumulative bookings of 8.1 million tons, well above last year’s 3.1 million by this date.
China has also increased corn imports, but there are concerns that country will back out of a portion of these as the year progresses.
Some of this concern is coming from a difference in opinion over Chinese corn stocks.
Private analysts have Chinese corn stocks estimated at 76.5 million metric tons. The USDA has a lower number with just 71.5 mmt.
If the privates are correct in their projection it will greatly impact corn balance sheets, and likely corn values as well.
Trade continues to debate what price level soybeans will need to reach to slow demand, mainly to China.
China has been paying a premium for U.S. soybeans in recent weeks to avoid potential logistic issues in South America. It appears as though Chinese buyers are losing their interest in paying a premium for soybeans though, mainly from declining margins in crushing and feeding.
Hog margins in China are their lowest in the past five years, and when combined with poultry diseases that are cutting flocks, we may have seen our highest soybean demand projection of the marketing year for China.
Logistics are not just an issue that is impacting South America.
The United States is having its own issues with transporting commodities. One reason is the unseasonably cold temperatures across the Midwest this winter, and how they have hindered river movement.
Normally this would put more emphasis on rail movement, but this is being strained this year due to an increase in demand for tanker cars in the North Dakota oil fields.
The United States has seen increased demand for ethanol in the global market.
According to data from F.C. Stone, ethanol exports from September through December totaled 130 million gallons. If this rate continues ethanol exports could total 570 million gallons this year.
This is a considerable shift from a year ago when the United States was a net ethanol importer.
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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