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KARL SETZER

By Staff | Mar 18, 2016

No changes were made to the domestic corn balance sheets in the March supply and demand report. This left corn ending stocks at a comfortable 1.8 billion bushels, and stocks to use at 13.6 percent.

We did see a minimal adjustment to the global corn reserve projection as the USDA accounted for a smaller South African crop and higher demand in South America. This still left the global corn reserve at a high 206.7 million metric tons.

We did see some adjustments to the domestic soybean balance sheets, but not enough to significantly change the outlook of the complex.

Soybean carryout increased 10 million bushels to a 460 mb total, mainly from a decrease in expected crush.

The global soybean reserve number decreased slightly, but still held at a comfortable 78.87 mmt. Despite several analysts claiming South American soybean production would rise, crop estimates were left unchanged.

As with corn, domestic wheat carryout was left unchanged at a burdensome 966 mb. To put this in prospective, even if the U.S. would not produce one bushel of wheat this year, a cushion this large would satisfy demand for 250 days.

Now that the monthly supply and demand report is out of the way, more interest will be placed on the reports that will be released at the end of the month.

These are the quarterly stocks data and prospective plantings. Of these two, many times trade pays more attention to quarterly stocks data, as those are firm numbers.

While trade will still use planting estimates in price discovery, it is well known that these numbers have the ability to change.

Commodity values have been holding in a strong sideways pattern for the past several months. A lack of fresh news has been the primary cause of this trading pattern.

Low speculative involvement in the commodity market has also been a factor in the lethargic trade we have seen. The question now is what it will take to break out of this pattern, and the beginning of the spring planting season and addition of weather as a market factor may accomplish that.

History shows that commodity values do firm from this point forward. One reason for this is the mentioned addition of risk premium to futures. Another is from simple seasonal patterns and how the market tends to receive more fresh news than it has since the end of harvest.

Increased trader positioning and the potential for short covering ahead of the reports at month end could also benefit commodity futures over the next few weeks.

Not only do we start to see more activity in futures at this time of the year, but in basis as well. The primary reason for this is that producer interest is now starting to shift to the spring planting season and away from marketing.

As a result, we normally start to see lower country movement and tighter pipeline supplies. Many buyers claim to have needs covered through March, but have limited bookings from that point forward.

There has been a gradual shift taking place in the global market that is becoming more noticeable. This is the transition from buyers coming to the United States for soybeans to sourcing them from South America instead.

This is most noticeable with China, who has booked nearly all of its soybean needs from April on from South America rather than the U.S.. What is most concerning about this is that China has been the buyer of nearly all U.S. soybean sales this marketing year.

At the same time, this shift in soybean sales out of South America tends to open the door for more corn sales out of the U.S.

The U.S. is dealing with a development in the commodity market that it has not seen in several years. This would be the building of soybean reserves.

Since the 2013/14 marketing year soybean stocks have increased, with the growth from last marketing year being the greatest. Soybean ending stocks are now expected to reach nearly 500 mb by the end of this marketing year compared to 92 mb at the end of the 2013/14 year.

Given this trend it may be hard to sustain a rally in soybean futures.

There is a development taking place in Brazil that could end up being a benefit for the soy complex. Economic issues in Brazil have started to affect credit availability, and in turn, could impact future planting.

Fertilizer sales are currently down 2 mmt from this development. Economists in the country also believe we will see loan defaults due to the poor economy.

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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