Low export volume a concern
Concerns are building over the slow start we have seen to the U.S. export market this year.
Even though the actual new crop marketing year is just getting underway, countries normally book at least some grain and soybean needs ahead.
This year’s cumulative sales are down a large amount from last year though, and before long, some analysts might start to rethink their projections.
The number in these that is most concerning is on soybeans.
One reason for this is that even though buyers normally shift to the United States at this point of the year, prices and grain stocks favor South American origin over the United States at this time.
This could take a large new crop carryout estimate from its already high number to one that would be considered burdensome in a short amount of time. This lack of demand could also negate any decrease in yield as well.
Even though harvest has yet to get underway in full swing across the United States, we are already seeing interest placed on next year’s production.
This means before long farmers will soon be forced to determine what crops they intend to plant. Some economists believe this will already start to impact futures, especially corn.
It is believed that if corn values recede from current levels it will cost that commodity acres which cannot be afforded given demand projections.
We are now at a point of the year where more interest will start to be placed on South American production.
This is because we are past the date that farmers can begin soybean planting in regions of Brazil.
The Brazilian government sets start dates for soybean planting to make sure fields are allowed to rest between crops.
This is done to limit cases of rust fungus in Brazil, and history shows the practice does in fact work.
It is also believed that we will see an increase to South American soybean production during this coming growing season.
At the present time Brazil is expected to increase soybean plantings from 3-5 percent from a year ago. In Argentina plantings are anticipated to grow by 2 percent.
While these seem like minimal amounts, it will add inventory to an already full global market.
What could end up impacting South American soybean production more than acres is the use of inputs.
After a slow start, fertilizer sales in South America, primarily Brazil, have increased to the levels of a year ago.
Elevated soybean values, currency differentials and credit availability have combine to promote fertilizer use.
It’s not out of the question that between increased acres and higher input use we could see Brazil soybean production equal to that of the United States this year.
Field scouts in Brazil believe there is an elevated chance of rust fungus infecting fields this year.
This is from the large amount of volunteer soybeans being found in Brazil, which gave the disease a place to survive following last year’s harvest.
It’s not out of the question this situation could also lead to earlier cases of rust than in previous years.
The spread between corn and wheat values is becoming more of a market topic. Some analysts believe we could see wheat carryout top 900 million bushels this year, making it the largest in the past several years.
If accurate, it is not out of the question we could see the wheat and corn price spread invert, making wheat the more affordable grain.
This would likely increase wheat usage in feeding and possibly ethanol manufacturing.
Trade is already looking forward to the October balance sheets and speculating on yield changes, mainly on corn.
Data from F.C. Stone indicates that in 15 of the previous 22 years the corn yield change from August to September repeated in October, or at least yield remained the same.
Given this trend, we could obviously see a smaller yield per acre in October.
The real question may be what is done with harvested acres though, and if these decrease as well.
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.
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