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KARL SETZER

By Staff | Dec 9, 2016

The USDA has released its baseline production estimates for the 2017/18 crops.

For corn, USDA is expecting planted acres of 90 million and a crop size of 14 billion bushels.

Soybean acres are projected at 85.5 million and a crop of 4.05 bb.

These compare to plantings of 94.5 million corn and 83.7 million soybean acres this year.

USDA is also predicting new crop ending stocks of 2.3 bb on corn and 396 million bushels for soybeans.

These numbers are being heavily debated, and rightfully so. The main reason for skepticism is they are being based on fertilizer sales, which are down from normal on nitrogen products. This is giving analysts the indication corn plantings will also be down.

This may not be the case, as many farmers could just be cutting back on inputs this year due to economics and low returns.

This could favor soybeans in many cases, especially in those where commercial fertilizer is needed.

The initial reaction to this reduction is not of concern as the United States has more than enough corn in reserves at the present time.

While this is true, if acres are reduced this much and any production issue would develop it could cause a significant drop in corn inventory.

The answer to this question comes down to demand. We are currently seeing elevated corn demand figures, but actual usage appears to be falling short of expectations.

An example of this is export sales and loadings versus the robust 2.225 bb figure that USDA is using in balance sheets.

Unless sales and loadings increase in the very near future it is likely we will fall short of that total. Analysts are quick to point out that interest in U.S. corn will increase once demand for soybeans subsides.

One benefit U.S. corn holds in the global market is price. At the present time U.S. corn is the most affordable for a buyer. This is an advantage through March, with corn from South America being offered at a discount from that point forward.

The question now is if this is enough of a window for the United States to make enough sales to cut into projected ending stocks.

There is even more uncertainty surrounding new crop soybean supplies. At the present time there is little concern with depleting soybean reserves. This is because many traders point out how China has their needs mostly covered through January, and will shift buying interest to South America at that time.

They believe that from that point forward, the United States will only be needed to cover immediate ship bushels to fill purchase holes.

This could quickly change though, as world soybean production this year is expected to fall 6 million metric tons short of demand. As a result, USDA could easily be underestimating soybean demand in current balance sheets. Some of these models indicate total soybean demand is underestimated by 140 mb.

Although quite early, trade is starting to closely monitor spring weather outlooks.

An area that is getting more interest is the South and Southeast where drought is already being reported. For now, this is confined to livestock production regions, but the worry is it will expand into crop production areas as well.

It appears as though we may have seen our greatest flush of cash deliveries for this harvest season take place. It also looks like producers are going to store as much of their newly harvested bushels as possible this year.

As a result, basis values have already started to firm in some regions of the interior market.

A major concern with this elevated volume of corn and soybeans going into storage is what conditions the inventory will be held in.

Many producers claim to be holding inventory in on farm storage facilities that have not been used for several years.

It is likely that many of these are in less than optimum condition and could cause issues to develop, mainly quality loss.

Another concern is that inventory appears to have a higher moisture content than in recent years, mainly soybeans.

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.

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