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KARL SETZER

By Staff | Nov 4, 2016

Demand for U.S. soybeans in the global market is running well ahead of expectations. So far this marketing year’s soybean sales total 801 million bushels.

This is a 237-mb increase from a year ago, while the USDA is only forecasting soybean sales to increase by 38 mb. Trade is now again asking if sales are heavily front loaded, or if they are heavily underestimated at the present time.

Much of this soybean demand continues to come from China. China’s hog production continues to expand, with 2017 growth projected at 1 percent. While this is slower than in recent years it will still generate more protein-based feed consumption.

If China follows through on its anti-DDG position, soybean and product demand may increase even more.

Trade is taking a more serious look at new crop soybean ending stocks estimates. The old crop soybean carryout numbers decreased by 300 mb from initial estimates and is now under 200 mb.

It is believed the same development could take place with current new crop ending stocks. If correct, this would put the united states in a rationing situation without a similar adjustment to production.

Soybean demand this marketing year has been robust, but as always, analysts are now asking how long this will last. Brazil is offering soybeans for late winter at a sizable discount to those from the United States.

This has caught the attention of buyers such as China, who is already booking their needs from that source.

Corn sales are well ahead of expectations as well. To date corn bookings are 374 mb ahead of a year ago at this time, while USDA is only predicting a 118 mb increase.

Corn loadings are also ahead of last year by 90 mb. Both corn and soybean sales are benefitting from low values, but also from the fact the U.S. has the majority of the world’s exportable inventory.

We continue to see debate over how much corn will be used for feed this year, and if we will see corn displaced with cheaper alternative grains. It is doubtful much of this will take place in the United States, as corn is more plentiful and easier to obtain.

This is not the case in the global market though, and many importers will take wheat over corn. This is especially true if buying wheat saves on freight charges.

More market attention is turning to planting and growing conditions in South America. So far weather conditions in South America have been mostly favorable for the planting of crops.

This is evident in the weekly reports that show seeding of both corn and soybeans is ahead of the average pace. The main question in the country is how many acres of each crop may be planted, with economics still favoring the production of corn over soybeans.

One factor that was expected to impact acres in South America that is now unlikely is export taxes on Argentine soybeans. Earlier it was announced that export taxes would be reduced a considerable amount this year. This change was pushed back, and then cancelled all together.

Now government officials claim soybean taxes will gradually be reduced over a period of time. This may reduce farmer interest in planting soybeans this year.

These thoughts are being verified in acreage estimates coming out of Argentina. Early indications are pointing towards a 20 percent increase in Argentine corn production. This would put the country’s corn crop at a record 36 million metric tons if correct.

There is little doubt this size of a corn crop would create competition for the United States in the global market.

GMO acceptance

We are starting to see more relaxation in the global stance towards genetically modified corn usage. The most notable right now is Brazil where several new varieties have been approved for import in just the past few weeks.

This comes on the heels of Brazil facing a significant short-fall in corn production this past year. The United States may be the greatest benefactor of this change in opinion in the global market.

The acceptance of GMO commodity production is expanding around the world. Many countries are coming to the realization that the use of GMOs is the only viable chance they have of meeting demand. This is most evident in China where corn yield is roughly half that of countries who produce GMO crops. GMO crops are also being shown to better withstand adverse weather, mainly drought conditions.

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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