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KARL SETZER

By Staff | May 19, 2016

Very few changes were made to the old crop corn balance sheets in USDA’s monthly supply and demand reports.

Ending stocks of corn for this year are now estimated at 1.8 billion bushels, 60 mb fewer than the previous estimate. This decrease was credited to elevated export interest.

The initial new crop carryout on corn is projected at 2.15 billion bu, slightly less than the average estimate, but a build nonetheless.

Got beans to sell?

Much more activity took place in the soy complex upon the release of the monthly balance sheets.

Old crop soybean carryout is now projected at an even 400 mb, a 45 mb reduction from April. This was from thoughts the United States will see elevated exports and crush both.

New crop soybean ending stocks were pegged at 305 mb in the initial release, 100 mb under the average guess.

Wheat

But there were few changes in wheat’s balance sheets this month. Old crop ending stocks grew by 2 mb to a large 978 mb.

New crop ending stocks of wheat are forecast to be even larger at 1.03 billion bushels.

Global grains

The global numbers contained more changes than domestic numbers, and had more of an impact on futures. Only minimal changes were made to old crop global reserves on corn, soybeans and wheat.

The real surprise came in the new crop numbers, especially on corn and soybeans. Both of these were below the average trade guess, and showed declining reserves from year to year.

These reductions were credited to the adverse weather in South America and how it has generated more demand for U.S. offerings.

The most talked about numbers from the entire report was on domestic soybeans. The 305 mb new crop carryout on soybeans was from a 175 mb increase to demand from this year, a direct result of the weather issues that have developed in South America. While this is the smallest year-to-year soybean demand increase in the past five years, total new crop soybean demand of 3.925 bb is a record.

Adding to that, soybean carryout had decreased from the initial estimate in 13 of the past 16 years by an average of 121 mb.

Soybean yield will obviously have a significant impact on ending stocks. Given the most recent changes to soybean yield from the initial projection to the final number, we could see a range from 44.9 bushels per acre to 48.2 bushels per acre.

If demand would remain unchanged, these yields would put carryout from a low of 160 mb to a high of 431 mb. We need to remember that while yield changes can impact carryout, alterations to acres can be just as influential.

There is a large amount of unaccounted-for corn and soybeans in the world market that is likely distorting supplies, however. The most widely publicized is the 250 million metric tons of corn in China. There are now reports that Argentina has 25 mmt more soybeans in reserve than data shows.

This could easily negate the changes to world balance sheets that were just released.

China is expected to offer a portion of this corn for export in the near future. This is reportedly in very poor quality, but even so, buyers will take it if the price is discounted enough. This is especially true for any country needing feed grain.

It is thought if these sales do not start soon, it will be hard for China to liquidate as much inventory as it wishes. In reality, sources claim it will take up to three years to export as much corn as China has indicated it will.

The real question is how much of this corn will still be usable for any source by that time.

Before long, planting in the United States will take a back-seat to crop condition. As it always does this will generate a large amount of debate in the market. This is from analysts who try to use crop ratings as a form of determining yield potential.

History has proven many times that this is unreliable in such predictions, still traders and analysts will try to use the numbers in price discovery.

The next major release of fundamental information will be the quarterly stocks data and revised acreage reports at the end of June.

Until then daily market direction will be determined by updated weather forecasts and crop reports. Expect the flow of money from outside markets to impact commodity futures as well.

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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