The March balance sheet updates contained few changes for the domestic numbers. We did see an increase in corn for ethanol of 50 million bushels, but this was negated by an equal decrease in feed demand.
This left corn carryout at a robust 2.3 billion bushels.
Soybean carryout increased 15 million bushels and now stands at a large 435 million bushels. While we did see an increase in soybean crush of 10 mb, this was more than off-set by a 25 mb decrease to forecasted exports.
Wheat carryout decreased a minimal 10 mb, but remains a comfortable 1.13 bb.
More changes were made to the global balance sheets. Ending stocks increased on all three of the major commodities, mainly from elevated production in Brazil.
The USDA increased Brazil’s crops by a large 5 million metric tons on corn and 4 million metric tons on soybeans.
Argentina’s production was left unchanged for now, but will likely increase as harvest progresses.
The Brazilian production estimates were actually smaller than the official numbers from CONAB, which is that country’s version of the USDA.
CONAB estimates Brazil’s crop at 89 million metric tons on corn and 107.6 mmt for soybeans.
Watch U.S. beans
While the United States will have an ample supply of soybeans at the end of this marketing year, future carryout bears watching. It would not take much of an increase in soybean demand and we could cut into reserves. There is also the possibility that new crop soybean yields may be closer to trend than what we have seen in recent years, and this alone could reduce our supply cushion.
This possibility of reduced soybean reserves is preventing fund liquidation, and keeping a floor under the soy complex.
While production is a main topic of discussion in trade at the present time, just as much attention should be placed on demand. Most forecasters do not believe we will see a significant change in corn nor soybean demand moving forward. In fact, some models indicate less demand as processors become more efficient.
The two with the most interest at this time are ethanol manufacturing and soybean crush.
We are starting to see a difference in opinion surrounding U.S. export potential. Current data suggest U.S. corn exports are going to top estimates by 88 mb. What is more noticeable is that corn loadings are running in line with sales and do not indicate a front-loading in the market.
The same is not true in the soy complex, where even though numbers indicate a sales total 100 mb larger than expectations, bookings are starting to appear front-loaded. This could easily lead to cancellations later in the marketing year, especially with a large South American soybean crop starting to hit the market.
Even though planting is already underway in the Southern United States, we are still seeing debate over potential acres. There are many who believe the warm, dry start to the planting season in the South will bring elevated U.S. corn acres, especially with a chance to lock in profitability on corn.
This could set us up for a surprise in the March intentions report, and some believe even past that.
It is interesting to note that corn acres historically change less than 1 million from the March intentions barring a significant weather event.
Watch rural economy
While there are several factors that will impact this year’s acreage, one that is getting more mention is the rural economy. Financing is becoming stricter in many regions of the Corn Belt, and the lack thereof could easily dictate what crops a farmer can plant this year. Even if acres are not adjusted from economics, the quality of the seed that is planted or volume of crop nutrients used may be.
Other farmers are going to work off income they have been rolling forward to purchase inputs, and their acres may not be affected at all.
U.S. ethanol manufacturing margins have eroded in recent weeks and in many cases are now at break-even at best. As a result, many plants across the United States are electing to take down-time for annual maintenance rather than operate at a potential loss.
If economics do not return, many of these plants may elect to remain idle, or return at a reduced grind rate.
Normally the news of ethanol plants slowing their manufacturing would support ethanol values. While this could happen, there is a development in the industry that could negate much of this support. That is news that Brazil has over-booked U.S. ethanol and may now need to wash out of purchases.
This is particularly concerning for the ethanol market, as exports to Brazil have been the leading source of profitability for the entire industry.
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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