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KARL SETZER

By Staff | Sep 30, 2016

Early harvest results this year are showing wide variability in yields. While some are just under those of a year ago, others are at record levels. This is really not that uncommon as harvest begins, especially in the fringe areas.

As always, the question is if good areas will off-set the poor ones enough for us to maintain the high yield forecasts we are currently using in balance sheets.

Now that harvest is getting underway in the United States, the question being asked is if there will be adequate storage capacity for the crops. The answer to this depends heavily upon where a person farms.

In the eastern Corn Belt there will likely be more storage than in the west as the crops are thought to be smaller. As it always does, the speed at which the crop is harvested will also be a factor for possible congestion, as well as how much of the crops need to be dried.

Buyers are closely watching deliveries across the interior market as the harvest season begins. It is thought farmers will deliver soybeans to town and store as much corn as possible on the farm.

This does not necessarily mean the soybeans will be sold though, and in fact, farmers may be willing to pay storage in anticipation of higher values later in the year. Forecasts for tighter ending stocks later in the marketing year are the primary reason for these thoughts.

The debate over just how many acres were planted in the United States this year is increasing. According to recent Farm Service Agency data, plantings may have been 1 million acres greater than what is currently being used in balance sheets from a lack of prevent-plant.

Others believe acres may be even higher, and upwards of 2 million greater than what is being used in production reports.

What could be an even greater factor in total production is the fact harvested acres may be larger than we have seen in recent years.

Trade is already starting to look at potential new crop acres and what they may mean for balance sheets. The most interest right now is on corn, where analysts feel upwards of 6 million acres could shift to soybean production.

While this seems like a large amount of acres, the United States may need to see this size of an acreage reduction to prevent a massive build in corn reserves. If the United States would plant as many corn acres next year as this and have a trend yield, we could easily see 2017/18 corn carryout above 3 billion bushels.

While new crop acres will impact corn balance sheets, so will demand. Economists believe corn demand from most uses has plateaued for now. In some cases, it is believed that corn demand is being over-estimated, mainly feed demand. Given current consumption rates and historical patterns, feed demand on corn is likely 200 million bushels too high.

This makes it even more important to see acres shift to other crops this coming year.

In all reality, the United States could not find a better year to see a shift in corn acres of this size. There are many scenarios in the market that point to a soybean carryout considerably less than what the USDA is currently projecting, and some point to a rationing level.

This means the extra soybean acres may be needed to satisfy demand in the world market that is being created by the short-fall in South American production.

The depressed markets we have seen in recent months are starting to have more of an impact on cash flows. The greatest concern right now is on rent and what a farmer is willing to pay for ground.

In the past few weeks we have seen more and more cases of farmers giving up high-priced ground to maintain a positive cash flow. The concern with doing this is that once commodity values recover, it may be very difficult to see production area build.

It is unlikely we will see China’s demand for soybeans or soy product diminish any time soon. While animal feeding is one reason for this, so is the reduced use of distiller grains in feed rations. In 2016 China is expected to import 3 million metric tons of distiller grains, roughly 50 percent of what was imported in 2015.

The ongoing dispute with the United States over dumping regulations in one reason for this cut back, but so is elevated use of China’s domestic soybeans to reduce government supplies.

While the Chinese government is pushing the use of stored inventory, buyers are heavily balking at its use.

This is from the fact the soybeans are reportedly low in quality and will not produce good products such as meal and oil.

Given this issue, the soybeans being offered need to be at a sizable discount to those in the global market to be used.

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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