The quarterly stocks report did little to support trade. As of Sept. 1, corn reserves totaled 1.74 billion bushels. Soybeans were 197 million bushels, and wheat came in at 2.52 bb.
These were all within trade estimates, and all above a year ago. Last year’s soybean crop was re-estimated as well, and was left unchanged at 3.93 bb.
While these numbers have given us a clearer indication of ending stocks, they still leave some questions. Inventory numbers tend to be distorted at this time of year due to the start of harvest.
This is more the case in the South, where fieldwork has been taking place for the past few weeks. The start of harvest also eases any concern over a potential tightening of stocks, which some analysts have been trying to use to support soybean values.
The International Grains Council has released its updated world production numbers. The IGC lowered world corn production by 3 million metric tons to a 1.03 billion metric ton total.
Global soybean production increased 4 million metric tons and now stands at 329 million metric tons. The council’s wheat production is projected at 747 million metric tons, a 4-million-ton increase.
The USDA may be over-estimating South American soybean production, especially in Brazil, where not only are acres forecast to increase, but so is yield. USDA is currently predicting a 2 percent increase in soybean plantings with the highest yield in the past 15 years.
These numbers do not agree with Brazilian expectations for elevated corn production due to more favorable returns.
There are also thoughts that USDA is over-estimating U.S. corn yield. Economists claim that current market economics indicate a corn yield that is 2 bushels per acre less than the USDA’s 174.4 bushels per acre. Others claim demand is over-estimated as well, and the two will simply off-set each other. If correct we could actually see a larger corn carryout even if yield is reduced.
One of the corn demand figures being questioned the most is feed usage. USDA is forecasting a 475-million-bushel increase in feed demand from this year to next. Even with elevated cattle numbers and the fact they continue to be held to higher weights, that much of an increase seems unlikely.
Even more bullish economists believe corn for feed is being over-estimated by roughly 300 mb.
Not only is feed demand on corn being questioned in the U.S., but around the world. This is from a large volume of feed wheat that is starting to surface. One of the biggest areas where feed wheat may come from is Canada, where 25 percent of the crop is expected to be feed grain quality.
This compares to the usual 10 or 15 percent from that country. Australia is also reporting a larger-than-normal amount of low quality wheat it will need to contend with this year.
Debate is taking place over crop quality and what impact recent weather had on crops. The most talked about is test weight. Crops seem to finish out fast and dry down at a rapid rate, which can be a sign the crop prematurely shut down. While this can and does happen, field reports do not indicate this is a wide-spread issue this year.
The United States continues to see elevated demand for its ethanol. In fact, this calendar will likely be the first one where ethanol demand has reached its mandated level.
This was starting to become a concern in the market as ethanol production has long out-covered demand.
The majority of this ethanol is going into the world market to cover the short-fall we are seeing from other suppliers.
The uncertainty 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.
Others believe acres may be even higher – upwards of 2 million more 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.
Basis values are starting to weaken across much of the interior market, which is not uncommon with the start of harvest.
In the past few years this has not been noticed as much as it likely will be this year.
One reason for this is the depressed futures we have this year, which will cause an even lower cash market. Another difference this year is that basis may remain weaker longer than in recent years given the larger fall supplies at many terminals.
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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