A figure that could easily change in future balance sheets is soybean demand. The USDA increased new crop soybean exports by 36 million bushels in the September balance sheets.
While this is positive news, according to some analysts usage needs to be even higher, with some already talking of another 70 million bushels of demand. While this is wholly possible, it could easily be negated by even higher production numbers.
While soybean sales are high, we are starting to see some concern voiced over the slow loading pace on bookings this marketing year. Soybean loadings over the past few weeks have fallen short of the amount needed to reach our yearly USDA projected total. Analysts are quick to step forward and claim it is early in the marketing year and loadings will catch up to the pace needed.
The problem with this is the longer it takes for the loadings to develop, the more ground they will need to make up to reach the initial target.
Trade is paying close attention to Chinese livestock production and feed demand. China has turned to importing pork recently as this is more affordable than raising hogs domestically.
In turn, this has started to reduce the amount of feed grain needed in the country, primarily soy meal.
As a result, forward bookings of that commodity have not as strong in recent months as they were expected to be.
Analysts are also questioning U.S. livestock production and feed grain demand. USDA spokespeople claimed U.S. feed efficiencies have actually decreased in recent months.
This is being credited to the low prices on feed grains and how livestock producers are pushing animals at high rates.
This is why we are seeing higher feed demand in supply and demand reports than animal numbers indicate.
Trade remains heavily focused on soybean demand, and appears to be over-looking the possibility of elevated corn demand. This is not so much from the domestic market, but from the possibility of increased exports.
Chinese officials believe corn production will be down 3 percent this year, and Mexico stated its corn crop will be less than initially expected from drought. This could easily open the door for more corn demand than USDA is currently forecasting, even if just a minimal amount.
A factor that could limit all export interest from the United States is logistics. While there is a large amount of demand, some doubt the ability of the United States to make timely shipments. U.S. ports can only handle so much export volume and it is quite possible we will reach that level this year.
No matter how high commodity demand gets, timely shipments will deter buyers.
Another demand issue is quality, as buyers across the United States are already starting to report quality loss with this year’s crops. This is only expected to get worse once harvest moves into areas where flooding took place and crops were under water for extended periods of time.
As a result, buyers are already starting to impose tougher testing regulations on inbound deliveries.
It is not out of the question that this is an issue that could start to impact demand for U.S. corn and soybeans in the global market if it persists.
We are starting to see a change in the mindset of producers across the interior market.
Many had been holding on to old crop bushels and claiming they would not market remaining bushels until the markets improved. We are now seeing some of these bushels sold as producers admit we may see depressed values for the next several weeks, and possibly months. This is most noted in corn, where producer expectations have been lowered by $1 per bushel or more.
One positive result of the depressed commodity market has been a reduction to cash rent. Research from the firm F.C. Stone shows cash rent values declined by 5 percent in 2015. While a sizable amount, this still pales in comparison to the decrease in commodity futures.
Unfortunately, landowners may be hesitant to lower cash rent much more at this time.
Farmland values on a whole across the United States are receding in value. One reason for this is the ongoing pressure we have seen to commodity values and a hesitation to buy land.
What could be more of a factor however, is that private investors are not showing as much buying interest in farmland as in recent years. This lack of competition has allowed land values to ease from their high levels.
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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