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Karl Setzer

By Staff | Jan 16, 2015

There are very different opinions forming on this years soybean market outlook. Soybean demand is quite likely higher than what is being forecast by the USDA, but the question is how much more.

Unless we would see soybean usage increase by 150 to 200 million bushels, the market may not react as much as expected given the fact this is still a larger carryout than we had last year.

While it may take a larger decrease in stocks to instigate a rally, it should help prevent a price decline.

Opinions on the global soybean supply are just as diverse. Some analysts are pointing out how March 1 soybean stocks-to-use in the global market will be one of the tightest in recent history.

While this is true, marketing year-end soybean stocks will be at a record high volume. The difference in these two opinions is that the South American harvest will still be taking place on March 1, and those soybeans will not be included in inventory reports.

Corn demand is starting to gain more market attention. One of the main uses that has been building is ethanol, where production has outpaced estimates for the past several weeks.

U.S. corn is now competitive in the global market, which could also lead to more export interest. The question right now is if any change in demand will be negated with production changes in the January supply and demand report.

Concerns are building over future profitability in the U.S. ethanol industry. While margins remain positive in the spot market for ethanol manufacturing and production is well above expectations, there are thoughts this could change in the near future.

This is from the fact we continue to see a decline in energy values at a time when gasoline demand typically drops off until spring. The combination of these two factors alone already has deferred ethanol margins in the red.

As the South American harvest season begins, weather remains nearly perfect. Not only is this favorable for the start of harvest, but for late developing crops.

The question now is if these conditions persist, will it impact the possibility of double cropping in the countries. Many farmers in South America had a late start to the first planting season, and could opt to not plant a second crop as a result.

Another question surrounding the South American harvest is how soon we will see soybean exports. In a normal year the first harvested soybeans are needed to replenish domestic reserves.

South American countries held over a larger amount of their old crop soybeans though, and as a result, we could see new crop enter the supply line earlier than normal.

It would not be surprising to see South American exports in the next four weeks because of this situation.

A recent report shows land values across the state of Iowa have started to decrease for the first time in several years. This is a situation that is being reported across the entire Corn Belt.

Declining commodity values is the primary reason for this drop in land prices, but so is a slow-down in investor buying. It is doubtful we will see a total collapse in land values, but more of a realistic market unfold.

Now that the calendar has turned to January, more interest will be placed on the cash market to see how movement develops.

Historically, we would see an increase in country movement when clients enter the new calendar year due to tax purposes. Given the increase of corporate farms and differing year-ends, heavy January sales are not as common as before.

There is also the possibility that sales that would have taken place in January already have, and the income has been deferred, which would also limit cash market movement.

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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