We are hearing debate over possible new crop-ending stocks on soybeans being sharply reduced from this year.
This stems from lost production in South America due to adverse weather. There are scenarios that place new crop carryover between 180 and 280 million bushels, and while reduced, may not receive a huge reaction in the futures market.
This is from the fact soybean futures have already rallied a sizable amount.
Some models indicate new crop-ending stocks could dip as low as 65 million bushels though, which would likely push the market considerably highly as this would be an all-time low soybean carryout.
The reason this story has not affected futures more than it has is that we could see a larger soybean acreage number in the June revisions to U.S. plantings. The number currently being used in balance sheets is 82.2 million acres, but regional delays to corn planting and favorable returns could increase plantings by 4 million.
If correct, this would add roughly 186 million bushels of soybeans to the current production forecast. In turn this would likely push new crop-ending stocks back above 400 mb.
Not only would this affect soybean values, but corn values as well. The impact on the corn market may be less than expected though.
This is from the fact that corn demand is likely over-estimated at the present time. It is quite possible that these two numbers may simply off-set each other, leaving new crop carryout at a comfortable 2 billion bushels, or higher.
Trade is not just concerned with shrinking U.S. soybean reserves from this year to next, but world reserves as well. Even though countries such as Brazil are forecast to expand soybean plantings this coming year, they are not going to be enough to satisfy growth in demand.
World soybean consumption is growing at a rate of 10 million metric tons per year. World production is only forecast to expand a little over 4 million metric tons this year though, creating the tightest global stocks to use in soybeans in six years.
Uncertainty surrounds the demand numbers the USDA is currently using in corn balance sheets. One of these is feeding, where a 300 mb yearly usage increase is projected even though animals on feed seem to be holding steady.
The least disputed number on corn demand is exports, as world corn production remains questionable.
Another factor that could distort corn feeding this year is elevated use of feed wheat. Several buyers in the world market have shown interest in booking feed wheat over corn. Others are not as interested in feed wheat imports, even though that grain holds a favorable discount to corn.
This is from the better efficiency that comes from feeding corn rather than wheat.
The greatest corn demand question surrounds ethanol. Gasoline demand in the United States remains depressed, and in turn, so is demand for ethanol. This has caused ethanol reserves to build to near burdensome levels.
The only outlet for the ethanol industry has been exports. The worry is that neither industry officials nor the USDA expect any growth in ethanol demand for at least the next 10 years.
We are at a critical time for corn planting in the United States. Some regions of the western Corn Belt have passed the final planting date for corn, and the majority will be at it at the end of May.
The final planting date for the majority of the eastern Corn Belt is June 5. Any unplanted corn acres at that time stand a good chance of either shifting to soybean production or being abandoned all together.
More attention is starting to be placed on the upcoming harvest. While producers across the United States have been actively selling old crop soybeans, we have seen less than average new crop sales.
Corn marketing has been low on both old and new crop. There are concerns that this will cause logistic issues this coming harvest season, especially if old and new crop deliveries are taking place at the same time.
Historically, we do tend to see elevated movement of farm stocks once planting concludes. This is especially the case if the crops appear to be progressing at a favorable rate.
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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