There are concerns building in the market over U.S. exports. In the past 20 years the United States has lost a large portion of global trade that it once dominated.
A recent study indicates that the U.S. share of the world corn market has decreased by 40 percent over this time, the soybean share has dropped 33 percent, and wheat trade is down 22 percent.
The greatest worry is that recent geopolitical developments will cause this market share to shrink even further.
The greatest concern at this time is between the United States and Mexico. There are changes being proposed to global trade policies that put a large portion of U.S. export business at the risk of being lost. Mexico accounts for 28 percent of U.S. corn exports, 13 percent of wheat sales, and 6 percent of soybean demand.
There is little doubt these losses would weigh heavily on an already questionable export program.
There are thoughts we will see a change in market attitude as we transition into 2017. This is focused mostly on speculative and index fund behavior.
In 2016 it was not uncommon to see selling take place when market would rally, limiting potential gains. There are now economists who believe we will instead see buying on breaks. If correct, this would negate much of the negative fundamental information the market is working through.
Trade is questioning the most recent USDA corn usage figures for the marketing year. The main one in doubt remains feed, where trade does not believe distiller grain usage is being fully accounted for.
It is believed that the changes in Chinese import policies will cause an even greater build-up of DDGs in the domestic market than forecast, and compete with corn as a result.
There is also concern in the market over the volume of unshipped corn sales at the present time, which are at a 13-year high. The worry is that a portion of these will be washed out once the South American export program begins.
We are starting to see concerns voiced over future ethanol demand and what it could mean for the corn complex. In recent weeks we have seen a considerable decrease in U.S. ethanol exports. There is also talk that between 70 and 115 million gallons of ethanol purchases that are on the books could be washed out.
This would add roughly 40 million bushels of corn to our current ending stocks estimate.
While not a huge amount by any means, it is still an unwanted build in reserves.
There are some strong similarities between this year and last in the soy complex. Soybean carryout this year is currently projected at 420 mb, which is actually 20 mb less than what was being expected a year ago at this time. Last year that number eventually dipped to 197 mb.
Another number that is close in the soy complex is the stocks-to-use ratio, which is 10 percent this year compared to 12 percent last year. This is a result of growing consumption of U.S. soybeans. These similarities are the main reason trade is not considering the current carryout number as being bearish to the market.
Opinions are varied when it comes to what actual soybean demand will be this year however. Even though soybean exports are running ahead of expectations, domestic usage trails estimates. So far this calendar year soybean crush is 15 million bu ahead of a year ago. The U.S.D.A. has projected an increase in soybean crush of 45 million bu. While it is early and this is not that wide of a difference, it could easily temper any increase to other soybean use.
Reports of yield loss in Argentina from adverse weather during planting may be over-exaggerated according to some analysts. They claim it is likely that no more than 3 to 5 million metric tons of total production may have been lost.
Yields in other regions of Argentina have benefitted from the rains though, which could still give the country larger crops even with this loss.
Others are quick to point out that the losses are more easy to recognize. This is because the loss is not necessarily from damaged crops, but from prevented plantings. These analysts claim 10 percent of Argentina’s intended soybean acres were not planted this year, so it is easy to zero-out yield on that land.
Even this is questionable though, as soybean planting is just concluding in some regions of Argentina.
Soybean harvest is rapidly advancing in Brazil, and as it does, the planting of the Safrinha corn crop is following right behind. An estimated 5 percent of the Safrinha corn crop is already seeded, compared to just over 1 percent last year.
The is a sign of favorable soil conditions in Brazil, which could also lead to elevated yields. It is also possible that the quick planting pace could lead to elevated acres, same as it does in 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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