Few changes took place to domestic corn balance sheets in the July supply and demand report. In fact, the old crop numbers were basically unchanged.
The U.S. corn yield was unchanged and acres increased 500,000 to incorporate the June revisions. This was enough to bump expected corn supplies this fall 103 million bushels, and raise new crop ending stocks by 80 mb to a comfortable 2.08 billion bushels.
The USDA decreased the Brazilian corn crop as expected, but even so world corn supply estimates grew.
More alterations took place to soybean balance sheets, both old and new crop. The USDA increased old crop exports which was enough to reduce ending stocks by 20 mb from the June estimate.
New crop soybean demand also increased, but given the elevated plantings estimate, next year’s ending stocks went from 260 mb to 290 mb. Global soybean carryout was also increased by 1 million metric tons.
While many modifications took place to supply and demand numbers in the wheat numbers, ending stocks were little changed. Old crop ending stocks are now at 981 mb and new crop is at 1.1 bb.
The stocks to use on wheat was relatively unchanged though, which is beneficial.
One figure that was not adjusted in this report was yield per acre, which will undoubtedly change as we move forward. Research shows that since the year 2000, corn yield has increased 11 times and decreased five times from July to the final number.
Soybeans are split with 8 higher and 8 lower. Corn yield has increased in each of the last three years, and soybeans up in the past two years.
Now that the monthly balance sheets have been released, we will see trade attention return to weather as a primary fundamental factor in the market.
We are now at one of the more important windows of crop development as corn is starting to pollinate across the Corn Belt.
We are also starting to see pod-setting on soybeans in some regions. Some experts claim this is the most influential points in crop developments.
Wheat is starting to apply more pressure to the corn complex, and this could continue for the next several months, if not years. The United States has a near burdensome supply of wheat, as does the world.
World wheat stocks may only increase as Australia and Argentina are expecting to see elevated production this year. This has analysts thinking we will see wheat values drop to 15-year lows, and cause competition for corn. This is especially the case in the world feed market.
There has been a shift in the global market when it comes to demand for U.S. corn. For many years Japan has been the leading buyer of U.S. corn, but cumulative bookings from Japan this year are the lowest since 1999. Mexico has replaced Japan as the leading destination of the grain.
This shift is the result of cheaper corn offerings out of Ukraine and South America into the entire Asian market.
More interest placed on what will take place between now and the rapidly approaching U.S. harvest season on stored inventory. Now is the time when many farmers need to decide on what commodity to sell and what to store. This is more of a case on corn this year, as many farmers have liquidated their entire soybean inventory.
There are reports that more interest is being shown in holding old crop over, and just delivering what new crop is needed to be moved right out of the field.
If yields are as large as some analysts predict they will be, this could easily cause logistic issues at many terminals this harvest season, especially if the corn crop needs to be dried.
We are seeing more production forecasts that are incorporating current crop conditions in their estimates. This is mostly on corn, as that crop retains a historically high rating.
In the past 30 years there have been seven with similar ratings and six of these were greater than trend.
Even though crop condition can be a poor indicator of final yield, this is giving trade the belief crop size may be larger than currently estimated.
We could easily see a wide spread in basis this year between the western and eastern Corn Belts.
This is from the production issues being reported in many regions of the eastern belt, and how production may fall short of demand.
As a result, some buyers in that region may need to come west for needs. Given forecasts for elevated U.S. exports due to production issues in South America, basis may find even more support.
Karl Setzer is a commodity trading advisor/market analyst based in West Bend. 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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