Trade is paying close attention to the planting pace that is being seen in the southern United States. So far, corn planting is running almost 10 percent ahead of average.
Sorghum planting is ahead of average by nearly an equal amount. History does indicate more grain acres than expected are normally seeded in years with fast-planting paces.
There is one major difference in the market this year than those in recent history – the lack of a weather premium associated with futures.
Normally, we see a slight building in risk premium ahead of the spring planting season in case adverse weather develops. The reason we are seeing less this year is the benign forecasts that have been released in recent weeks and the ample supply of old crop reserves, especially on corn.
Another difference between this year and those in recent history is a lack of country movement. Typically we see a flush of farm-stored inventory hit the market ahead of the spring planting season. This year farmers are uninterested in moving any more inventory than they already have, mainly from the depressed cash values. This has caused the cash market to firm across the interior market, but less than normal given our current commodity inventory.
Country movement of farm-stored corn has been light this year, but we are seeing less urgency for buyers to cover needs. This is especially the case from the ethanol industry. One reason for this is that margins in the industry have eroded in recent weeks and are now negative in many cases. Another is that plants will soon start shutting down for annual maintenance, and see little need to extend coverage at this time.
Even with limited country movement of farm-stored inventory in recent weeks, end-user coverage remains adequate. Many report having needs purchased to last them for four weeks. Now all these buyers need to do is purchase enough inventory to last until the planting season begins and they should be covered while fieldwork takes place.
The possibility of an El Nino building this year is growing. Weather forecasters believe there is now a 50 percent chance of an El Nino this growing season. While these tend to bring above-trendline yields to the United States, there are other regions of the world which suffer.
One of these is the area that produces palm oil – that commodity is already at a 20-year low.
U.S. soybean sales this year are giving two different outlooks for the market. Cumulative soybean sales this year at 25 percent greater than a year ago. This compares to expectations for soybean sales growth to only total 6 percent. The reason this is not giving the complex more support than it has is the indication that soybean sales are front-loaded, and will drop off as the marketing year progresses.
We continue to see a shift in the entire outlook for the U.S. soy complex. This is a result of the March supply and demand report that gave us a higher carryout than trade was expecting. There are now thoughts we could see an even higher carryout estimate in the next supply and demand report. The real question is what we may see for the initial new crop soybean carryout estimate that will be released in May, as some believe this will be even higher.
There are some traders who do not believe we will see soybean carryout increase very much from its current level though. This is mainly from the fact that soybean carryout decreased from this point forward a year ago. As a result, we are seeing soybean futures hold a premium to a year ago of $1.25 per bushel. The concern with this is that if soybean ending stocks do not recede, futures could erode that amount.
When it comes to global soybean balance sheets, trade is keeping a very close eye on China. The USDA currently estimates Chinese soybean imports for this marketing year at 87 million metric tons. Actual sales and loadings indicate this number should fall between 90 and 93 million metric tons. The difference between these two figures will mean the difference between a tighter global soybean inventory or a build in reserves which has not been seen in several years.
China is giving the world mixed indications on its corn supply and demand situation. Last week China sold corn to help cover the void in the market created by shipping delays out of the United States. It was reported that China was looking to import corn, likely for blending purposes with its low-quality corn China has in reserve. Some analysts now question how much corn China actually has in reserve, and whether the corn has any quality value at all.
The Food and Agricultural Policy Research Institute, or FAPRI, has released its farm economy outlook. The group is expecting net farm income for the United States to decline 6.7 percent this year, making it the fourth straight year of reduced revenue. While FAPRI does expect to see higher grain prices, it is expecting losses in livestock production to pressure the ag economy on a whole.
FAPRI is projecting average cash prices of $3.60 on corn, $9.57 on soybeans, and $4.44 on wheat. The most concerning number in this report is that FAPRI expects U.S. farm debt to increase by $11 billion.
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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