More and more analysts are voicing their opinion that corn acres will be lost this year due to delayed plantings in some regions. So far, most of these claim we will see roughly 2 million corn acres go unplanted from what the USDA projected in March.
While this is possible, it does not mean less corn production.
In fact, even if the United States plants 2 million few acres but yield increases just 2 bushels per acre, we could actually see an increase in new crop carryout from current estimates.
If this scenario on acres becomes a reality, it will obviously impact soybean balance sheets as well. The difference between corn and soybeans is that soybean demand is likely underestimated at the present time.
Even if soybean plantings increase by 2 million acres and yield holds mostly steady, we could see a decrease to new crop carryout from current projections.
While this seems positive, the fact that ending stocks are projected at 475 million bushels gives us plenty of room for changes without becoming bullish.
We are at a point where market attention tends to shift away from the planting pace and more on condition, mainly on corn.
At this time summer weather maps become much more of a market factor as they start to reach out to the pollination time frame.
To see a weather-related short covering rally at this time is not uncommon.
The extent of the rally can be questionable though, especially in El Nino influenced years such as this one.
While trade showed interest in recent balance sheets updates, many analysts have already formed their own opinions on carryout, mainly new crop.
The problem with doing this is that the range of ending stocks estimates varies a tremendous amount, especially on corn.
These range from a low of 1.6 billion bushels to a high of almost 2.5 bb.
The problem with this range is that even at the low end the stocks to use ratio is more supportive than bullish in today’s environment.
A significant factor in new crop ending stocks on corn will be what we see for old crop carryout, and this is starting to be more debated.
One of the heaviest debated is feed demand, with some analysts believing this figure alone is being over-estimated by 400 mb.
A lower number of cattle on feed and some of the best pasture conditions in recent years are greatly reducing our feed grain demand.
Trade is starting to focus more on what farmer intentions are with their new crop marketing.
At the present time there has been a minimal amount of new crop inventory marketed, with new crop corn sales at a record low total.
Farmers have indicated that even with depressed futures and cash values below break-even in several regions they will wait to extend coverage.
This is being verified by the increased interest in storing inventory this fall, regardless of economics.
While the market has mixed opinions form over supply and demand every year, there is one factor that seems to consistently get overlooked.
This is the fact that many of today’s commodity end users, especially for corn, have become more efficient.
One of the most talked about in recent times has been ethanol, but we are also seeing better rates of gain on livestock through improved genetics as well.
Today’s corn and soybean plants also have improved traits that allow production to take place for specific uses.
There are economists who believe we may need to see a major correction in today’s agricultural market.
Given current price trends and yield potential, these individuals believe we need to see a realignment in costs, especially for land and cash rent.
Their opinion is that this may be the only way to keep many farmers profitable and in business.
While this is accurate, how much these costs need to correct depends heavily upon what direction the futures market takes in the next few months.
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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