While weather will likely be the next factor to drive commodity values, not many forecast models are indicating adverse conditions at this time. Right now there is a very strong chance that this coming year may have neither a La Nina nor an El Nino event to contend with.
During such years there is a high probability of no worse than trend yields, especially on corn. Even with reduce acres, this could cause a slight build in corn reserves from this year.
We have seen a shift in weather and soil conditions across the United States. At the present time nearly 70 percent of the United States is reporting normal soil moisture. Just a few weeks ago this total was 30 percent.
This shift has greatly alleviated concerns over new crop production, and already has many analysts expecting trend or better yields.
The annual shift in global soybean buying habits is starting to take place. It is not uncommon to see buyers shift their attention to South America at this time.
A spread in prices between the United States and South America is also a factor for this shift, especially with Brazil.
Soybeans can currently be sourced from Brazil at a 15 cents per bushel discount to the United States.
The United States has seen elevated demand for its corn in the global market in recent weeks however. Even so, the complex has not seen values appreciate as much as hoped for.
This is from the simple fact that even with higher demand there is little chance of cutting stocks to a worrisome level. It is also well known that if corn values rally much they will become unattractive, and buyers may book feed wheat instead.
We are starting to see a well-defined division take place in the soy complex. Many analysts believe we will see reductions to carry out as we progress through the marketing year, same as we have in several recent years.
Others are quick to disagree, and believe the large South American soybean crop will deter buyers from taking U.S. offerings. The real question is not so much if stocks might increase, but rather by how much if they do.
Even though just updated, trade is looking forward to future balance sheet updates. Current export loadings on corn indicate a final number that is nearly 150 million bushels greater than what USDA is estimating. As it has been the opposite side of this is that feed and ethanol demand is questionable, and could erase much of this export number.
One factor that is concerning in export sales on a whole is the volume of unshipped bushels on the books. Right now the United States has outstanding sales of 803 mb on corn and 384 mb on soybeans.
The number that is most concerning is the soybean figure, as we have already seen cancellations take place on that commodity. If even just a portion of the sales on the books are washed out of it will greatly change the outlook for the entire complex.
Trade is starting to more closely monitor the world corn balance sheets. One area receiving more attention is the European Union, where corn supplies are expected to decline a considerable amount this year.
Analysts in the countries believe corn reserves will dip to 390 mb this year compared to 625 mb a year ago. This reduction in corn reserves is in response to elevated ethanol production as the E.U. tries to become more self-sufficient for needs.
In what is not a surprise, Brazilian soybeans are currently trading at a discount to those from the United States. While this has drawn business away from the United States, there are questions as to how long buyers will bypass us as an origination source.
We are already seeing U.S. offerings for late summer trade at a discount to Brazil, which could easily bring business back to the U.S. As a result, we may not see an expected decrease in soybean export forecasts until later in the marketing year, if at all.
Tensions are increasing in the U.S. ethanol industry. The industry has been under pressure for the past several weeks, and several plants are now posting margins at or just below break-even.
This is mainly from eroding demand for both the ethanol and ethanol by-products in the global market. There are now concerns we will see changes to regulations that will lessen domestic demand as well, and further stress profit margins.
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.
Please Enter Your Facebook App ID. Required for FB Comments. Click here for FB Comments Settings page