The revised plantings report surprised trade as plantings of the three major crops all are forecast to increase from the March intentions.
The USDA now estimates plantings of 94.1 million acres of corn, 83.7 million acres of soybeans, and 50.8 million acres of wheat.
These compare to the March intentions of 93.6 million corn, 82.2 million soybean and 49.6 million wheat acres.
The number in these that received the most intention was the soybean acreage, as even with the elevated plantings, large yields will be needed to satisfy demand.
The quarterly stocks were above expectations on corn and soybeans and right at the average estimate on wheat.
As of June 1, U.S. reserves totaled 4.72 billion bushels on corn, 870 million bushels on soybeans, and 980 mb on wheat.
Not only were these up from estimates, but all were well above the levels seen on the same date a year ago.
Of all of these numbers, the one that may be the easiest to dispute is the acreage data. This is from the fact that planting was still taking place while information was gathered for the report. There is a general feeling in the market than soybean acres will be even larger in the final report this fall.
Not only is attention on planting in the United States, but what will take place in South America in the next few months. Preparations are being made for the upcoming planting season in South America, and trade is already trying to predict acreage and crop size.
The most interest in Brazil is on soybeans, where record values could easily lead to greater plantings than what took place this year. In Argentina the consensus is we will see more corn acres, as the relaxing of tax rates favors the production of that crop.
Trade continues to monitor the El Nino/La Nina weather systems and how they will impact global commodity production. The focus has now shifted to South America and how the transition to a La Nina would affect production in those countries.
For the most part, a La Nina tends to have limited impact on Brazilian production. The influence on Argentina can be much more noticeable though, where drought is heavily associated with the event.
Even though there remains a significant price spread, the USDA does not expect an increase in global wheat feeding this year. USDA does believe this will change in the 2016/17 marketing year though.
Wheat feeding that year is forecast to total 128 million metric tons. What trade is questioning is that given the huge supply of world wheat, this is actually 2 million tons less than what is forecast to be fed this year.
Trade is becoming increasingly concerned with the world supply of soybeans. In just the past two years the global soybean supply has shrunk 15 percent. This is the equivalent of 440 mb. What is most concerning is that global soybean demand is steadily increasing, causing stocks to use to tighten 6 percent.
We are at a point of the marketing year where export loadings can be more of a market factor than sales. This is because sales at this point of the year can easily be switched to new crop delivery.
Export loadings are a more definitive number, and can be used as a good indicator of actual commodity demand. At the present time this is more of a concern for soybeans, as indications are we will not meet the yearly loadings target that is being predicted.
China remains the leading buyer of soybeans in the global market, and this demand is only forecast to grow even larger. Sources in China believe the country’s soybean imports will increase 3 million metric tons next year, even with elevated domestic production.
There are hopes this business will come to the United States, but in order to do so, the U.S. needs to remain price competitive in the global market. The U.S. is the most favored source of soybeans through July, but from that point forward Brazil has the cheapest offerings.
Another Chinese import from the United States being closely monitored is ethanol. China has been a major buyer of U.S. ethanol recently, but elevated use of subsidized domestic corn may reduce the country’s need for ethanol imports.
The concern is that without this demand, U.S. ethanol reserves will build to burdensome levels and cause considerable economic loss in the industry.
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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