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KARL SETZER

By Staff | Dec 23, 2016

The volatility we have seen in the value of the U.S. dollar recently has impacted the global commodity market. One reason for this is the influence the U.S. dollar has on export demand and global buying power.

Another one, and one that could have more of an impact on the entire market, is what the value of the dollar will have on future world production. A strong dollar could easily cause more plantings to take place as the resulting crops will carry a higher value in the global market.

This is from the fact global trade is based on the value of the U.S. dollar, not that of the producing country.

The high levels of corn mycotoxins in the eastern Corn Belt are becoming more of a market factor. The issue is becoming so widespread that buyers are now paying a premium for corn that is within acceptable levels. There are now thoughts this will cause corn to move from the western Corn Belt into the east.

Even if this does not happen, the possibility of it has caused export basis to firm to prevent eastward movement, especially in the Pacific Northwest.

The greatest concern with these toxins is that they can carry over into corn by-products, mainly distillers dried grains. As a precaution some feeders have already cut back on the volume of DDGs they will use in feed rations. Feeders have reduced their DDG usage by 75 percent and breeders have removed them altogether.

While this has pressured DDG values, it has provided support to the soy meal market.

We continue to see farmers across the United States hold corn back and sell soybeans as soybeans are more profitable at the present time. While this is true, producers who are holding out for a sizable rally in corn may be disappointed.

This is because until demand is better known, traders may be hesitant to rally the corn complex.

Even though balance sheets were just updated, we are already seeing debate over what actual year-end carryout will be, especially on corn. There are numerous analysts who believe corn export projections are 125 million bushels too high.

Others believe the corn for ethanol demand projection is similarly too low.

While these two may off-set, the same may not be true for corn for feed. It is well thought that corn for feed is currently over-estimated by roughly 350 million bushels. This is from discrepancies in cattle numbers on a whole, and also from the abundance of alternative feed grains.

Another unknown in the market is simply how much corn can be consumed. Domestic corn demand is currently at max capacity, putting the global market as the primary factor for a corn rally.

This is especially true in the ethanol industry. Even if global corn demand would increase, we may not see enough growth to reduce carryout much from the current 2.4 billion bushels projection.

Little faith is being placed in the baseline numbers the USDA released in November. USDA is predicting a 4.5-million reduction to corn acres this coming year, but just a 1.8-million acre increase to soy plantings. The obvious question is where the remaining acres will go, as it is highly doubtful they will remain unplanted.

There are also doubts we will see that great of a reduction to corn plantings, even with more favorable economics for soybean production.

Soybean planting is wrapping up in South America. In Brazil we have seen a shift in interest from the initial crops to the secondary crops, mainly the Safrinha corn crop.

It appears as though this will be planted in near-perfect conditions compared to last year when half the crop was seeded in poor conditions. There is a very good chance this will lead to a larger corn crop in Brazil, and help replenish reserves.

Conditions in Argentina are more questionable at this time. Planting has been delayed a small amount in Argentina due to cold, wet conditions. While planting has resumed and will be wrapped up in no time, it is still believed yield has been affected.

Several analysts have lowered the Argentine soybean crop by 75 million bushels due to the early growing conditions.

Data shows us that China may remain a significant soybean buyer longer than expected. Hog margins have improved in China to a point where herd expansion may increase at an elevated level.

At the same time Chinese crush margins have rallied back to the highest levels in the past two years. The question with this demand is where the soybeans will be sourced from though, with most indicators leaning towards South America as an origination point.

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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