U.S. soybeans remain competitive in the global market which is favoring sales. Even though harvest is getting underway in South America, the United States is the cheapest source in the global market through February.
Even then the United States only trails Brazil by 10 cents per bushel on soybean offerings. Given the tendency for export delays at the start to the Brazilian harvest, this could keep buyers coming to the United States for soybean needs for longer than trade expects.
Even though the USDA. continues to forecast a large if not burdensome U.S. soybean carryout, several analysts are not concerned with the figure. This is because in many recent years the final carryover total on soybeans has been considerably smaller than where it started. In some years this reduction has been as high as 50 percent.
One difference between this year and those is that soybean ending stocks estimates have gradually been climbing since the initial forecast. Another is that South America is in a position to export a huge volume of soybeans this year, limiting demand for soybeans from the United States.
While most interest in exports recently has been on soybeans, corn loadings are just as friendly. Not only is U.S. corn the most competitive in the global market at the present time, but for the next several months. In fact, U.S. corn is the most competitive compared to world sources through June.
Given the fact we are already ahead of where the USDA is expecting corn sales and loadings to be, total demand will likely be higher than balance sheets indicate.
There is some concern in the market that the U.S. export program on corn and soybeans is front-loaded. This would be the result of active buying now in anticipation of higher values to come later in the marketing year.
Export loadings do not indicate this is happening though, as corn shipments are nearly equal to those of a year ago and soybean loadings only trail last year by 2 percent. If sales were front-loaded these differences would be much greater.
Export business is also the greatest source of support for the U.S. ethanol industry. At a time of year when gasoline demand on a whole starts to decline, exports have prevented ethanol stocks from building. The main buyer of U.S. ethanol is Brazil, where last year’s drought has reduced stocks of both corn and sugar cane, which are Brazil’s two leading feed stocks for ethanol production.
The wild card in soybean and soy product demand is China. Chinese officials claim to have soybean needs covered through January, and at that point, will source needs from South America. The greatest unknown is if China will keep all bookings it currently has from the United States or possibly cancel some of these. This depends heavily upon what futures do over the next several weeks, and if it would make economic sense for them to wash out of bookings.
This demand for soybeans and soy oil is starting to affect possible new crop acres. The high values we have seen on soybeans has likely caused some acres to shift to that crop rather than corn in certain regions of the United States. Normally we would see the corn complex push values to prevent acreage from shifting, but the huge corn reserve volume this year is preventing this from happening. In turn, this limits the amount soybeans need to push for additional acres.
Financing is also going to play a larger than expected role in U.S. acreage this year. In normal years a producer plants the crop with the greatest return, but that may change this year. It is not out of the question that farmers could plant the crop with the lowest cost of production.
It is widely believed that this will favor soybeans over corn. This may be the case, but it still depends heavily upon what a producer uses for inputs, mainly seed variety.
Country movement of stored corn and soybeans is becoming mixed. Western Corn Belt movement is starting to increase in response to the latest rally in values. Movement is much less in the east which is forcing buyers to extend their reach to try and secure needs.
In some cases, basis values in the eastern Corn Belt have improved to the point where western stocks are being bought to satisfy coverage.
In a little over six weeks we will likely start to see early planting begin in the United States. This means we are getting to a point where more interest will start to be placed on spring weather outlooks.
Trade remains concerned with the drought that has affected the South Eastern U.S. as well as the Southern Plains. While trade will monitor these dry conditions, seldom does a market rally from any indication of a drought during planting.
In fact, most of the time dry soils during planting are bearish for the market.
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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