Balance sheet adjustments on corn were minimal in the April update. Feed use was the only change to demand with a decrease of 50 million bushels and was enough to push corn carryout to 1.827 billion bushels. The global number increased a large 3.2 million metric tons, reflecting the decreased demand for U.S. inventory and elevated yields in several other corn producing countries.
The same lack of changes to balance sheets took place in the soy complex. U.S. ending stocks decreased a slim 15 mb, but still holds at a comfortable 370 mb, which was right in line with trade estimates. Global soybean reserves also had few changes, holding at a large 89.6 million metric tons.
Change to wheat ending stocks were a little more noticeable, as carryout was reduced by 7 mb. This was the result of wheat imports being cut by 15 mb. Reserves are still forecast at a robust 684 mb. Global wheat carryover was steady at 197.5 million metric tons.
There is a definite possibility that analysts are underestimating new crop corn demand, mainly exports. Countries in the Black Sea and European Union regions are forecasting lower corn production than a year ago. There is a good chance this export business will come to the U.S., depending upon South American production. South American countries are forecasting larger corn crops than a year ago, but exports from these locations may be limited due to economic issues.
Of the countries that may not increase corn production this year, most interest in on Ukraine. Last year Ukraine farmers produced 60 million metric tons of grain, a total that was forecast to increase to 80 million metric tons this year. The turmoil between Ukraine and Russia has made this increase highly unlikely due to the impact it has had on Ukraine’s economy. Not only has Ukraine seen inflation of 30 percent, but its currency has devalued by 50 percent, making the financing and purchase of inputs difficult to say the least.
While corn exports may remain strong into the new crop year, there are other sources of demand being questioned. One of these is ethanol, as production is forecast to decline as we approach the blend wall. Economists believe this issue will eventually reduce total ethanol demand by a large 1.5 billion gallons. Another corn demand being questioned is feed usage as cattle placements remain low and herds are not building.
Soybeans are not free from the possibility of increased export competition either. Soybeans may find most of their competition from South America, mainly Argentina. Argentine farmers continue to hold a record volume of old crop soybeans in storage as a hedge against economic issues in the country. There are now concerns that this holding of soybeans is doing more harm than good as the Argentine government needs the tax income from soybean sales to generate enough revenue and remain operable.
We are starting to see more weather forecasts released for this years growing season. After what is expected to be a cool, damp start to the growing season, weather conditions are expected to turn warm and dry. These outlooks have already led to some analysts increasing their yield estimates. While these would be favorable for the production of corn and soybeans, there are several other factors that will also impact yields.
Not only is weather a factor for the U.S. crops at this time, but for those around the world.
Global weather has been a negative factor for wheat recently, as conditions in both Russia and Australia have greatly improved in recent weeks. Conditions are also favorable in South America for the completion of harvest and planting and development of second crops. These conditions have greatly reduced the amount of risk premium in future values.
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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