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KARL SETZER

By Staff | Dec 4, 2015

More debate is taking place over what we could see for next years acres, yields, and commodity supplies.

Given current market value differentials, economists do not believe corn can sway acres away from the soy complex.

If we would see a trend soybean yield this could be enough to push 2016/17 ending stocks on soybeans to 700 million bushels. This volume of carryout with projected demand would indicate soybean values below $7 per bushel.

While we are seeing a spread between corn and soybean values, it is currently not wide enough to shift acres. It is believed that this spread will need to widen to 80 cents to cause a shifting of intended acres.

Many believe this means corn will need to rally, but any change that will net a differential close to that size will have the same result.

U.S. soybeans remain the most economical for buyers in the global market. This is especially the case for soybeans sourced off the Pacific Northwest.

These are currently being offered at an 11 cent per bushel discount to soybeans out of South America. The United States may not enjoy this for very long however, as soybeans in late winter when South Americas harvest begins are the more favorable.

This scenario is not the same for the corn market. Corn sourced from the United States is currently some of the highest priced in the year, with other sources as much as 20 cents per bushel cheaper.

The United States is also seeing ongoing competition in the global market from cheaper alternative grains including feed wheat. There are also buyers who claim to have needs covered for the next several weeks, if not months.

Farmer holding of inventory continues with deliveries limited to mostly forward-contracted sales.

The lack of an incentive to make sales in todays market and adequate cash flow are the two primary limiting factors in movement.

This has caused basis to firm in some regions of the interior market, especially in the East.

Basis is much weaker in the West, and even where it has firmed, it has for the most part failed to off-set losses in the futures market.

There is considerable talk in the market surrounding the carry that is in today’s market.

Carry is the term used to describe elevated bids in deferred months compared to what is being seen in the nearby market.

Many analysts are advising farmers to hold their inventory in storage to take advantage of these higher elevated bids.

While this appears to be a good option for a farmer, it does not necessarily mean it will generate an increased volume of revenue.

For one, storage costs money. Whether inventory is held in commercial storage or in on-farm bins it still costs money.

This is not just from storage fees, but from interest, insurance, and elevation costs. A farmer also stands to lose quality in stored grain if not monitored closely. When these costs are all added in, it could actually turn a carry market in to a losing position.

One thing that is for certain is that the only way a client can take advantage of carry in either futures or a cash market is by locking it in.

Net farm income for 2015 has been adjusted, with lower revenue being predicted.

Net income for the year is now being forecast at $55.9 billion. This is down from the $58.3 billion estimate in August, and the lowest net income since 2002.

The drop we have seen in all commodity values is the primary factor behind the low revenue prediction.

This is the time when we start to see year end positioning take place in the markets. This is more of a factor with the fund crowd where positions are normally squared at year end.

In recent weeks we have seen a large volume of managed money exit the pits though, and this could ease up on year end activity.

The question now is what these specific traders will do next year.

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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