We are starting to see more forecasts released regarding summer weather. Some of these are calling for warmer-than-average temperatures, with some claiming this coming summer could go down as one of the warmest on record.
This is from models that indicate a shift towards a La Nina influenced pattern. The possibility of this has caused increased risk premium to be added to commodity futures.
The most talked about weather factor in today’s market is the El Nino/La Nina debate. Forecasters now believe the transition into a La Nina will be in late summer.
It is quite possible that this could cause the event to miss the majority of this year’s growing season, and have little if any impact on yield. Other outlooks have the system building mid-summer and impacting later developing crops.
One comparison that is being made for both weather and planting conditions is to the year 2012. The planting pace in the United States that year was a record.
Crop condition ended up being one of the poorest on record though, and final yield was well-below average.
This shows that while important, a rapid planting pace is just one factor in determining final yield.
The story on delayed plantings in the Delta is no longer a significant market factor. This is because the total of acres that may be affected from flooding have dropped from 4 million to less than 1 million.
Some scouts in that region claim total affected acres may fall to under 200,000 which would have no impact on the market at all.
We continue to see a large volume of old crop corn enter the 9-month loan program. Entries are currently 40 percent greater than the three-year average.
Economists claim this is an indication of how tight credit is becoming for many producers this year compared to those in recent history.
Others believe it is a sign of the poor market, and farmers are opting to take advantage of the loan rather than sell into a depressed market.
While much of the weather talk in South America has focused on Brazilian drought, heavy rains in Argentina have actually been more of an issue. Over the past week Argentine farmers have struggled with persistent rains that have brought harvest to a complete standstill.
This is starting to cause a drop in soybean inventory in the country, and affecting the country’s crush industry. There are thoughts this could bring additional business to the United States, and have given our soy complex support.
Reports that Argentina had to buy back sales they were unable to fulfill added to the support from the weather issue.
Dried distiller grain values have been under pressure recently which is starting to impact ethanol margins.
According to research from Advanced Trading, DDG values are currently trading at 80 percent of the value of corn. This compares to 130 percent of the value of corn just one year ago.
A sharp decrease in export interest, mainly from concerns over the anti-dumping allegations by China, is the primary reason for the set-back in DDG values.
Economists are becoming increasingly concerned that the United States will again produce large crops this year. Given the fact demand has likely plateaued for now, this will add to already large commodity supplies.
This is also likely to keep commodity market values depressed. The concern is this will only add to the economic issues many farmers across the United States are already facing.
Trade is starting to look forward to the May supply and demand report as it will contain our first look at new crop balance sheets. Given the acreage projections at the end of March, a corn carryout near 2.5 billion bushels is not out of the question.
Soybean carryout could hold steady at around 450 million bushels given acreage estimates and trend yield. Even if yield would happen to fall slightly under trend, it may not have a significant impact on market values given these carryout possibilities.
We are seeing a change take place in the market regarding futures and this year’s plantings. Soybean values have rallied considerably in recent weeks and thoughts are this has bought the complex some acres.
While this is possible, the fact that corn has also appreciated in value and planting is at a record pace in many areas will limit the possibility of acreage loss on that grain.
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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