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Karl Setzer

By Staff | Jan 2, 2015

We are starting to see more of a separation between corn and soybean values. This is not surprising, and is the same market scenario that developed last year.

Soybeans started a $3 per bushel rally one year ago at this time while corn struggled. We have seen this trend take place already, but one significant difference this year is global production estimates which are limiting buying in either pit.

Indications on next year’s possible plantings are offering soybeans even less support. Major seed companies indicate corn seed sales are down significantly, and taking it as a sign of more soybean plantings.

Fertilizer retailers are reporting the same situation. While this shift may be possible, there is also the likelihood that farmers are just waiting to see what spring weather conditions are before locking in their inputs.

There are other thoughts surrounding this lack of corn seed booking. Some analysts believe farmers are simply not buying any seed at this time due to high costs.

While this may be true, it is doubtful many farmers will hold out too long before booking their input needs.

Trade should have a better idea if this is in fact what farmers are opting to do within the next few weeks, as this is the time when most seed needs are covered.

Some analysts believe new crop corn futures have more upside potential than the market reflects.

There are thoughts that given the current acreage shift possibilities and a return to a trend line yield, we could see a dramatic drop in new crop corn stocks.

Some believe corn supplies could be cut as much as 1 billion bushels from this marketing year.

If correct, this would reduce our stocks to use to roughly 8 percent and justify $5 corn futures.

There is also a general belief in the market that soybean demand is currently being underestimated.

The question is, how much? Some analysts believe total usage will be 100 to 150 million bushels more than currently estimated, which would have limited impact on balance sheets or market values at this point.

Others believe total soybean demand will be upwards of 300 mb greater, which would put the United States back in to a rationing position.

Concerns are building over the quality of this years soybean crop. It appears as though this years soybeans have a low oil content.

Very few if any oil premiums are being paid to producers in the interior market. While this could increase crush to obtain the amount of oil needed to satisfy demand, it could also decrease the willingness of buyers to push for our raw soybeans in the global market.

There is speculation we will see increased global corn production in future supply and demand reports.

This is from reports out of countries such as Brazil, where officials have the crop projected to be 3.7 million tons larger than the U.S. Department of Agriculture does. China is also expected to see an increase in corn production from current estimates.

If correct, this could further strain U.S. export sales.

The build in global soybean reserves may be even greater. At the present time the world market is forecast to have a carryout of 3.3 bb of soybeans this year, or roughly a 113 day supply. This is only forecast to increase with expanded acres being projected for the United States this coming growing season.

Benign weather outlooks and increased distiller grain production and use could further alter soybean balance sheets.

Chinese farmers claim they are going to make changes to improve the country’s corn production. This has been an ongoing process, as China has limited ground available for any production.

China’s corn currently has an average yield that is roughly half of that in the United States, but has the ability to produce a crop that is nearly equal in yield per acre.

The most heavily debated of improved practices is the use of GMO seed, and one China may be forced into to help satisfy demand.

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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