Ending stocks of corn were reduced in the June supply and demand report. Old crop reserves were reduced 95 million bushels from elevated exports, and now total 1.7 billion bushels.
This carried over into the new crop year, where exports were increased another 50 million bushels. This was enough to give us a new crop carryout of 2 billion bushels. Global corn reserves next year are pegged at 205 million metric tons, a 2-million-ton decrease from May.
Soybean carryout had more significant changes.
Old crop ending stocks were reduced by 30 mb from crush and exports, putting it at 370 mb. New crop exports were increased 15 mb, and with the reduction to old crop carry-in, gave us new crop ending stocks of 260 mb.
World soybean reserves were also lowered, and now stand at 66.3 million metric tons.
Old crop wheat carryout increased a minimal 2 mb, pushing ending stocks to a large 980 mb. New crop wheat balance sheets had several changes take place, with a larger yield being the most notable.
While wheat demand did increase, it was not enough to off-set the higher supply number. As a result, wheat ending stocks are now estimated at 1.05 bb, a burdensome amount.
There has been little, if any, concern over soil moisture across the Corn Belt this year. In fact, if anything, excess moisture is more of a worry.
This has been the case for the past three years, and is limiting the amount of risk premium we have seen added to futures this growing season. Trade is well aware of the fact this is how the year 2012 started out as well though, and turned into the worst drought in recent years.
Now that crop conditions are being released, some analysts will use these to try and determine final yield. This happens every year, and has proven to be highly inaccurate.
History has proven many times that crop appearance and yield potential are not the same, especially this early in the growing season. History has also proven that we can see wide swings in crop ratings from the beginning of the growing season to the end.
Country movement of farm-stored inventory has taken place in recent weeks, but we have seen a shift in which commodity is moving. During the first part of May soybean sales and deliveries were taking place.
Since then we have seen more movement of corn. Basis values remain historically firm though, as buyers want to prevent this flow from stopping.
One reason for this elevated movement, other than price, is that farmers want to avoid quality issues. This is the time of year when quality loss tends to occur in farm-stored inventory.
This is especially true in bins that have not had anything drawn out of them for an extended period of time. Moving this inventory, even if just a portion of it, can prevent losses from take place.
Another reason for the willingness to make sales is new crop development. Once a crop is planted, a producer tends to be more willing to market their open bushels.
The better a crop looks, the higher the volume of sales. Not only can this generate more old crop sales, but new crop as well.
The price spread between corn and wheat is starting to get more interest in the market. This is not just from the global side, but domestically as well. There are thoughts that wheat could soon start to displace corn needs due to its discount to the historical price spread.
Normally this is just in feed programs, but it would not be surprising to see substitutions in other corn processing facilities either.
It is possible that the seasonal tendency we see for weakening soybean sales will not take place this year.
Normally, we see export demand on soybeans slow in the summer months when buyers go to South America for needs.
There are many reports of low soybean inventories in South America this year though, which could limit the ability of those countries to supply needs.
This could easily bring the U.S. more export interest than projected.
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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