Drier-than-normal soil conditions across the United States are starting to get market attention.
There are some long-range models that indicate these conditions could last through the winter months and into the spring planting season.
An even more immediate concern is that in some areas soils are so dry, fall fertilizer is not being applied.
It is not out of the question this could eventually start to impact acreage and yield estimates.
Trade remains concerned with the slow start we have seen to the U.S. corn export program this year.
Even though it is still early in the year, some analysts have already lowered their yearly projection on corn sales.
A few have trimmed corn sales by a large 125 million bushels.
While this size of a decline to corn sales is possible, it may not show up in official numbers until later in the marketing year.
Not only is debate taking place over this year’s carryout possibilities, but what we could see a year from now as well.
At the present time it is believed that the U.S. could see an increase in soybean planting due to more favorable economics than for corn.
The concern with this is that given current ending stocks estimates for this year and projected demand, new crop carryover could top 500 mb and possibly approach 600 mb.
Trade is also showing more interest in global balance sheets on old crop corn.
More corn-producing regions of the world are reporting dry conditions, including the European Union and South Africa.
Along with weather, global economics are also impacting corn production in South America and Ukraine.
While this is all possible, crop losses may have to be significant to impact global balance sheets.
Even if we do see a decline in corn demand, some analysts believe they will be off-set by a decrease in yield.
They are pointing out a strong tendency for corn yield to decrease from the number published in October balance sheets.
While this is possible, it does not necessarily mean it will take place.
In fact, given recent crop reports we could actually see higher yield estimates in upcoming supply and demand reports.
Trade continues to debate what impact, if any, an ongoing El Nino will have on South American soybean production.
History indicates little correlation between this weather event and yields, but this year may be different.
This is from the fact there has not been an El Nino as strong as the current one since soybean production expanded as much as it has in Brazil.
This expansion has pushed soybean production into regions where El Nino is more of a factor, mainly the northern regions.
Cattle feeders are once again facing some difficult times which could also impact corn demand.
Sharp losses in fat cattle values have livestock producers losing an average of $350 per head and this could climb to $550.
While producers have benefitted from lower feed grain prices, the high price that was paid for feeders is causing losses.
The question now if is we will continue to see breeding stocks held back or more movement into feeding lots with these poor returns.
Storage has been more of an issue than expected across the interior market this year, mainly in the western Corn Belt.
This started with the much-better-than-expected soybean yields in several regions and an unwillingness by farmers to make sales.
The fact that harvest has taken place without any disruptions has prevented terminals from shipping out inventory to make needed space.
It is not out of the question that once this inventory is thinned out another flush of movement may hit the cash market.
One result of this year’s large crops across the western Corn Belt has been the increased use of temporary storage.
The concern with this being done is that some of these facilities are not meant for grain storage, even if just temporary.
As a result, this inventory is in jeopardy of significant quality issues developing in a short amount of time.
The best way to prevent this from happening is for producers to move this inventory as soon as possible.
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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