As expected, corn carryout increased in the February supply and demand report. Corn exports were lowered by 50 million bushels, much of which was off-set with increases in ethanol and industrial uses.
The USDA increased corn imports by 10 mb, and the combination of these factors bumped ending stocks to an estimated 1.837 billion bushels, 35 mb greater than the January number. The global corn reserve number was left mostly unchanged at nearly 209 million metric tons.
Even fewer changes took place to the domestic soybean balance sheets. The soybean supply was left totally unchanged while demand was reduced by 10 mb due to slowing crush.
This will give the United States an ample 450 mb soybean carryout this marketing year.
Global soybean reserves were bumped up to an adequate 80.4 million metric tons.
The commodity that had the most negative data was wheat. Ending stocks of domestic wheat is now forecast to total 966 mb, 25 mb more than the USDA projected in January. The global wheat carryout number was the most negative, jumping from 232 mmt last month to a current 239 mmt estimate.
There are legitimate concerns that we could see our corn surplus increase before the end of the marketing year. USDA is estimating a corn carryout of 1.837 bb, but many analysts feel this will be closer to 2 bb before the marketing year ends.
This is from a plateauing domestic demand and low export sales. The easiest source of demand to increase will be exports, but unfortunately, this will take lower values to accomplish.
One of the U.S. corn demands that has the most uncertainty is ethanol manufacturing. Ethanol margins remain under significant pressure with little potential for improvements in the near future.
At the same time, many plants are still generating revenue from sales of products such as distiller’s dried grains. There are also indications that ethanol production has been higher than weekly reports have indicated, and yearly corn use will not decrease as expected.
While old crop corn stocks could easily increase, trade is starting to show more interest in what could take place in new crop balance sheets.
Several forecast models indicate the current El Nino will transition to a La Nina. If correct, this could give us a less-than-trend yield. Such a reduction is more likely to happen if the shift from one influence to the other is rapid.
Developments in the Chinese corn market are gaining attention. China’s economy is highly unstable, and has dropped to the point where corn price supports can no longer be paid.
Some analysts have stepped forward to predict China may make corn exports as a means to generate revenue. The question is how many buyers would show up for this corn due to both price and reported quality issues.
Concerns are building in the market over the slower-than-expected pace we have seen on soybeans this year. Cumulative soybean exports currently trail last year by 9 percent, but this could easily grow.
There is a large volume of optional-origin soybeans that have been sold, and these could come from a source other than the United States. While it is not a given this shift will happen, current market economics do indicate it will.
Global soybean production is forecast to increase this year and again next, but this may not pressure soybean values as much as in earlier years. World soybean production this year is forecast to be 2 mmt greater than a year ago, and increase another 1 mmt in 2016/17.
Demand is also expected to increase, and consume these soybeans and then some. Even with higher production, world soybean stocks could easily dip from 77 mmt in the 2014/15 marketing year to 73 mmt in the 2016/17 year.
The spring crop insurance minimum price level is currently being established and numbers are not very favorable.
Market closes over the month of February are averaged to set a minimum insurance payment.
Last year these were set at $4.15 for corn and $9.73 on soybeans. Minimum prices this year are expected to be lower, and for soybeans, well below the cost of production.
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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