Trade remains concerned with the U.S. new crop soybean acreage estimate of 83.7 million acres. While this is an increase of 1.5 million from intentions, it may still fall short of what is needed to prevent new crop carryout from dropping to a critical level.
At the rate we have been using soybeans, the United States will need every one of these acres and no less than a trend yield of 46.7 bushels per acre to prevent this from happening.
There is a factor that could alter this scenario as well as the corn stocks figure. This is the volume of unshipped sales the United States has on the books.
These currently total 250 million bushels of soybeans and 540 million bushels of corn.
If even a portion of these soybean sales are cancelled it could mean the difference between rationing and more than adequate reserves.
We are at a stage of the growing season when weather becomes a main fundamental factor.
Trade is starting to pay closer attention to long range weather models that will start to cover the remainder of the growing season.
The concern is we will see elevated temperatures during the pollination stage in corn.
In a market that is carrying little if any risk premium, any indication of adverse conditions will receive a market reaction.
One factor that trade is paying more attention to when it comes to weather is overnight temperatures.
While heat during the day can affect crop development, stress can be reduced if temperatures decline in the nighttime hours.
If overnight temperatures do not, crop loss can easily take place. The last time this happened was in 2010, when corn yield was just 95 percent of trend expectations.
Another weather-related factor that trade seems to over-look is what impact it could have on transportation. This is more so on U.S. river systems.
If the United States would happen to experience a widespread drought this year, we could easily see low water levels in rivers, and restrictions on barge movement. If this starts to take place, we will see buyers show hesitation in sourcing needs from the United States.
The transition from an El Nino to a La Nina weather event remains a market factor. While this may not have an immediate impact on the United States, it may on South America, mainly Argentina.
Argentina tends to suffer from poor growing conditions in years that are La Nina influenced.
The commodity that has faced the most pressure recently, and could for an extended period of time, is wheat. We have seen wheat stocks build to one of the highest levels in history and driven values lower.
Now we are hearing reports that Argentina will increase wheat production by 23 percent this coming year to take advantage of favorable tax incentives. If this drives the wheat market much lower, we will start to see heavier displacement of corn in feed programs as a result.
Sources in Brazil are expecting to see an increase in soybean production this coming year despite credit concerns. Credit is becoming harder for a farmer to obtain in Brazil, and it was thought this would impact next year’s plantings.
Instead, farmers claim the record soybean values will encourage them to plant more soybeans, just not as much if credit were easier to obtain. At the present time officials in Brazil are expecting to see 1.5 to 2.5 million more acres of soybean production.
These soybeans are going to be needed by the global market. World soybean production this year is expected to decline to 318 million metric tons due to production issues in South American.
At the same time, global soybean consumption is expected to climb 2 percent to 325 million metric tons.
Officials in Argentina are also forecasting an increase in production this coming year, but believe it will happen in corn.
Most feel corn production in the country will grow by 10 to 15 million metric tons. While this does not seem like a large amount, it will more than make up for any corn loss in Brazil this year from drought.
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.
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