Analysts are revising their estimates for soybean carryout. Many believe new crop ending stocks will dip even further than currently estimated as they think yield is currently over-estimated.
While this is possible, the likelihood of greater acreage than we are currently using in balance sheets could negate a lower yield. There is also a possibility of a lower yield and steady or reduced acres, which could drop new crop soybean carryout to a rationing level.
While soybean ending stocks could create volatility in that complex, we may need to see a considerable decline to corn yield from its current projection to make a substantial impact in futures.
Current corn futures indicate the market is expecting to see a corn yield this fall around 160 bushels per acre.
This is considerably less than what is being used in balance sheets. If anything, we could see the market pressured with higher yield estimates.
Trade continues to make comparisons between this crop year and those in recent history to try and determine yield potential. The one most being talked about now is 1998. That year the U.S. corn yield was 103 percent of trend.
A repeat of that this year would equate to a corn yield near 174 bushels per acre, and a new crop carryout close to 2.7 billion bushels using current demand projections.
China remains an active buyer of soybeans in the global market. China has imported record volumes of soybeans for the past four consecutive months.
Cumulative soybean demand in China is running almost 6 million metric tons above expectations. This greater-than-expected demand and production worries in South America could leave the world market with the tightest stocks to use since 2013 this year.
While these numbers are supportive for trade, they do raise some legitimate questions. The main one being if China actually needs the soybeans, or is simply buying them for their reserve program. If just buying for reserves, a sudden halt to purchasing could easily take place.
Another is what elevated soybean demand may mean for the distiller grain market. It is quite possible that the tight soybean inventory could be covered with other protein feeds, with DDGs being the main one.
The United States is currently seeing little if any competition in the global corn market from Argentina. Argentina is not offering corn for export until mid-July, and even then, the United States is at a 20-cent discount. Right now the only competition the United States is seeing is from Ukraine.
Unfortunately, this is where most buyers in the Asian market are sourcing their needs.
The shortfall in South American corn production this year could bring the United States more corn export business than expected. It is believed that the loss of production will create a void of 410 million bushels that will need to be filled.
Analyst believe a large portion of this could come to the United States. There are also thoughts that feed wheat will displace a large portion of corn demand, and not impact the market much at all.
As we progress through the marketing year, trade starts to pay more attention to export shipments than sales. It is not uncommon to see export sales canceled at this time of the year or rolled to the next marketing year for delivery.
Export loadings are a much more accurate indicator of demand, as the commodity has physically left the country. As of right now this appears to be more of a factor in the corn complex.
We are starting to a change in market mentality when it comes to production expansion. In recent years farmers across the United States would push to rent additional acres, even if it meant just breaking even. Credit is becoming harder to obtain though, and lenders want to see a greater chance of profitability in today’s market before making loans. This is starting to reduce interest in not just purchasing but also renting farmland.
Weather is currently one of the greatest unknowns in the commodity market, and the one with the most fundamental influences.
Conditions across the Corn Belt have been favorable for the most part, and as a result we have seen little risk premium added to futures. The majority of the strength we have seen in the market recently is from speculative buying, and more from a money flow than fundamental point of view.
The difference between these two sources of support is that risk premium tends to be a more long-term source of strength.
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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