The November supply and demand report shocked the market with bearish corn numbers. The U.S. corn yield increased 1.9 bushels per acre for a national average of 175.3 bushels per acre.
In turn this elevated total production by 169 million bushels; much larger than what trade was expecting. We did see slight increases to demand, but even so, carryout is now projected at a large 2.4 billion bushels.
Soybean data was even more negative for trade. The national average yield increased by 1.1 bushels to a 52.5-bpa production level. This puts total production on soybeans at 4.36 bb. We did see a 25 mb increase to soybean exports, but this was mostly negated by a 20 mb reduction to crush.
As a result, soybean ending stocks swelled to a huge 480 mb.
Many analysts are expecting to see higher yield numbers in January as harvest will be complete, and contain data from the northern Corn Belt where yields are expected to be very good. This will create basis opportunities to make sales, but they may be narrower than we have seen in the past.
For the past few years we have seen soybean carryout gradually decline as the marketing year progressed. This is from the fact demand has been habitually under-estimated while production was over-estimated. This year may be different though, as it appears the crop continues to grow as harvest progresses. This could keep ending stocks steady, and possibly give us a larger carryout at the end of the year than we are seeing now.
Ethanol margins have been pressured in recent weeks, and likely will be for some time. At the present time ethanol profits are about half of what they were just a month ago.
We are starting to see discussions take place over potential new crop acres in the United States. Most firms that have released their estimates are calling for less corn and more soybean plantings this coming year. Estimates range from 3 to 6 million fewer corn acres and 4 to 5 million more soybean acres. These are based off current market economics though, and will change several times between now and next spring.
The United States may soon see elevated export competition in the world market from the Black Sea. Black Sea countries believe their wheat exports will increase 12 percent from last year to now. At the same time much of this wheat may be needed to cover an expected shortfall in Australian wheat production this year where drought is taking place.
While this would mostly be for wheat, it could easily impact corn demand as well.
We continue to see debate in the market surrounding the possibility of a La Nina weather event this winter. Forecasters believe we will see a La Nina develop, but it may be a very weak one. If correct this will have little impact on South American production, which could mean better yields than trade is forecasting.
It could also favor spring weather and bring an early planting season to the United States.
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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