Trade is already looking forward to next year’s production possibilities, especially on corn. There is a well-publicized estimate that the United States will plant 4.5 million fewer corn acres this coming year.
Even with such a decline, trend yield, and steady demand, corn reserves at the end of the new crop marketing year will still be close to 2.8 billion bushels.
If corn yield is similar to this year and acres do not decrease, a corn carryout of nearly 3.5 billion bushels is not out of the question. This is one of the greatest negative factors corn faces at this time.
Financing could easily be as much of a factor in new crop acres as anything else. Commodity values remain under pressure in the U.S. and the impact is still being felt by producers.
Many have now run out of the money they saved following the good revenue years and are being forced to make decisions on this year’s crops.
As a result, many may decide to plant the crops with the lowest input costs this year rather than the greatest possible return.
There are more stories of producers across the Corn Belt who are going to cut corners this coming year in an effort to improve profitability. This is not necessarily the best choice a producer can make when trying to balance a budget. Rather than cutting back on all inputs or input quality, a producer is better off using a variable rate program in an effort to maximize input usage.
The same can be done with seeding, which has become more widely used in recent years.
The U.S. corn market is in a tight spot right now. There are hopes that the market will rally and increase the value of old crop bushels. If this happens however, it will make U.S. corn unattractive in the global market.
Any rally in corn will also lessen the chance of acres shifting to soybeans, which is needed to prevent corn stocks from building to a burdensome level.
Trade is showing less concern with the large soybean carryout this year than analysts have expected. Soybean carryout this year is forecast to be a large 420 million bushels by the USDA, over twice the volume that was carried over last year.
The reason this is receiving less attention than anticipated is that soybean ending stocks have a strong tendency to be over-estimated early in the marketing year. As a result, there are expectations for the total to decrease as the year progresses.
We are also seeing estimate scenarios on new crop soybean carryover. If the United States sees the acreage shift that is expected and a trend yield, new crop ending stocks could easily reach 525 million bushels.
The difference with soybeans is that demand is much greater on a global scale, and these soybeans will be more easily consumed. This would especially be the case of we would see a weather issue develop in the global market.
We are starting to see a seasonal shift take place in the export market for U.S. soybeans and corn. It is not uncommon to see importers lose interest in U.S. soybeans at this stage of the marketing year in favor of soybeans from South America.
This shift has been confirmed by a decline in weekly soybean sales, including the absence of the large daily sales we had become accustomed to.
At the same time, this is normally when we start to see demand for U.S. corn increase in the global market, which is desperately needed.
A year ago, several analysts were anticipating elevated demand for U.S. corn in the global market due to the shortfall in Brazilian production. So far we have not seen a noticeable increase in corn demand and we may not.
Brazil is producing large crops this year and should easily be able to replenish their domestic corn supply by the end of next year. The high probability of elevated double cropping will further boost Brazil’s corn reserves.
Soybeans have resumed their role as leader of the futures market. The majority of this strength is coming from Argentine weather and how some analysts claim up to 10% of the country’s soybean production has been lost from persistent rains and flooding. This would equate to roughly 147 million bu. The question now is if near perfect weather and crops in the remainder of Argentina and Brazil can compensate for these losses.
One factor that is limiting market concerns on weather is the fading La Nina pattern. La Nina readings have weakened in recent weeks and are now close to neutral. There are forecast models that indicate the La Nina will be a non-event before the spring planting season. If so this will likely start to generate ideas of better than trend yields in the United States for a third year.
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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