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KARL SETZER

By Staff | Sep 23, 2016

Minimal changes took place to the corn numbers in the September supply and demand report.

The USDA did reduce corn yield to 174.4 bushels per acre and crop size to 15.09 billion bushels. Corn demand decreased though, which kept carryout at a comfortable 1.7 bb on old crop and 2.38 bb for new crop.

Only slight changes took place to the global numbers as well, with old crop ending stocks at 209 million metric tons and new crop at 219 mmt.

More alterations were made to the soybean balance sheets. USDA increased old crop exports by 60 million bushels, which cut ending stocks to a low 195 mb.

Soybean yield increased a large 1.7 bushels per acre though. If accurate it will give the U.S. a projected 50.6 bushel per acre average and a 4.2 bb crop.

Even with elevated new crop demand, ending stocks are projected to grow to a comfortable 365 mb.

World soybean ending stocks are also forecast to increase this year to 72.9 mmt.

Absolutely no changes took place in the wheat balanced sheets from August to September. USDA kept old crop ending stocks at 981 mb and new crop at a large 1.1 bb.

There is heavy debate taking place over the yield numbers USDA just released. This is from the simple fact harvest has not progressed far enough to alter estimates from the previous month. Much more interest is being placed on what yields will do in October, when harvest is more advanced.

The quarterly stocks data will also be incorporated in those numbers, giving us a clearer ending stocks picture.

One of the most highly debated numbers in the domestic market right now is feed demand. USDA is projecting increases to feeding of 475 mb for corn and 200 mb for wheat. These are being made in spite of animal units only increasing 1.2 percent from a year ago. It is quite possible USDA is only projecting feed demand this high from the low prices we are seeing for feed grains and not basing them on actual usage.

Now that harvest is starting to progress, the question being asked is what will happen with new crop bushels. This is more of a market topic than normal this year as there is a large volume of bushels still being held on-farm.

Farmers claim that given current futures values they will try to store as many bushels as possible and put as little as possible in commercial storage. Cash grain buyers are closely monitoring this situation to see if they will need to push bids for deliveries, and if so, how much.

When it comes to marketing there is a well-defined division between the eastern and western Corn Belt states. Both producers and commercials have been more willing to move inventory in the western Corn Belt where there is a larger supply of old crop bushels. New crop production looks more favorable in the west which is elevating sales in those months as well.

It is not out of the question this trend could last all marketing year, and possibly into the next.

Trade is bringing up a point that could increase U.S. production even more. This is not from yield, but from acres.

Historically there has been a difference between USDA and Farm Service Agency acres that has led to larger crop sizes. Given the historical trend, these deviations would increase acres by 2 million for both corn and soybeans.

Rains in the United States will start to be looked at differently from now through the end of harvest. While precipitation can benefit later developing crops, it can be just as much of a hindrance.

This is from the fact rains can start to delay harvest, and in some cases, cause quality loss. The reaction to any harvest delay this year will likely be limited though given the large volume of old crop reserves still being held.

The commodity with the least amount of competition has been soybeans. Total unshipped soybean sales from the United States are currently the third highest in history. Much of this is in the new crop months, where sales are 50 percent greater than last year at this time. The question with these sales is if they are being made for actual demand, or rather as a hedge in the global market against what could take place in the future.

Corn planting is progressing in Brazil, giving us a better indication of what we may see for acres in the country.

Sources claim Brazilian farmers will expand corn production by nearly 8 percent this year. This is from both a need for corn in the country, but also from a lower cost of production.

Unlike the United States, farmers in Brazil spend more on producing corn than soybeans, mainly from fungicide applications that are required to grow a soybean crop.

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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