Yearly comparisons made
We continue to see comparisons between this marketing year and previous ones, mainly 1993 and 2010.
While there are some similarities from a weather and crop point of view, the most resemblance is in price action on corn.
In both of those years corn values rallied in early summer, then faced a set-back before making another leg up.
This is from the fact that in both of those years yield loss was discovered later in the season, which could easily happen again this year.
There is little doubt that we will see additional loss of soybean acres this year in regions that have received continuous rains.
At the same time wheat is being harvested and being followed by soybeans.
It was thought double cropping would be limited this year due to market values. The latest bounce in soybean values, the potential for more advances and favorable weather have combined to make this option more attractive.
Even with the possibility and likelihood of reduced soybean production and stocks, futures have failed to react as much as some analysts had hoped.
This is from the global soybean production outlook and stocks. South American soybean stocks on Sept. 1 are projected to be 13 million metric tons larger than a year ago.
Not only will the volume of these soybeans compete with the United States, but so will the fact that they are normally offered at a discount to U.S. soybeans.
There are some analysts who believe corn yield will be low enough this year to cause price rationing.
A corn yield this year of just 160 bushels per acre would do this given our current demand forecast.
There is also a possibility that the U.S.D.A. could leave yield unchanged and adjust acres instead as they did in the July balance sheets.
Either way we could see a reduction to total corn production and that is the figure that will really impact futures rather than just one moving part.
The concern that we could see a reduction to corn production is showing up in the futures market. We are already seeing a slight price advantage to corn production over soybeans in the deferred contracts.
This is especially true in the 2017 months. The spread between corn and soybeans is being limited by reports out of South America that soybean production will continue to expand, especially if soybean futures hold at current levels.
Trade continues to monitor the current El Nino weather system and its impact on crops.
This weather event has created little stress on the U.S. crops so far, which is not uncommon. In most El Nino influenced years the U.S. has a tendency to see yields that are trend or better.
Some forecasters are monitoring long range models though, as it is not uncommon to see a rapid shift from a strong El Nino to a La Nina in some years.
While weather in the U.S. is still a factor in price discovery, global weather is starting to gain more attention.
There are no real significant threats for the U.S. at this time, but traders are worried about other areas, mainly Canada and Asia. Analysts claim that crop damage from drought has occurred to the oil seed crops in these regions and it will likely increase demand for U.S. soy products in the world market.
Trade is also monitoring the dry conditions in Europe and the impact they have had on crops in those countries.
One of the greatest obstacles today’s commodity market is suffering from is being overpriced in the global market.
Right now a buyer can source corn from South America at a considerable discount to the U.S.
In fact, South American corn exports to the U.S. are happening in today’s market.
It is difficult to expect other buyers to show interest in our offerings in this environment.
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.