The quarterly stocks data showed larger reserves on March 1 than what trade was expecting. On that date the United States was holding 8.6 billion bushels of corn, 1.74 bb of soybeans, and 1.65 bb of wheat reserves.
Compared to last year these were increases of 794 million bushels of corn, 204 mb of soybeans, and 283 mb of wheat. These numbers give trade the indication we will see larger carryout estimates than currently being used in balance sheets.
The acreage data was also released, and was more negative for the soy complex than they grains. Soybean acres are forecast to total 89.5 million this year, 6 million more than a year ago.
Corn acres are forecast to total 90 million and wheat is projected at 46 million, both down 4 million from last year. Trade knows these are moving targets though, and will change as the planting season progresses.
One of the more negative factors in the commodity market right now is the large ending stocks estimates on corn and soybeans. The question is how low these stocks need to decline to be considered friendly for trade.
For corn stocks will need to get to the 1.5 bb mark, which will likely have to come from a production issue rather than elevated demand. Given the current stocks to use on corn, it may take more than one year to accomplish this feat.
Stocks are also a point of pressure on soybeans, but the outlook is not as negative for that complex. U.S. soybean carryout is currently projected at 435 mb, which is a 10.6 percent stocks to use. If soybean yield would return to trend it would tighten this enough to cause at least some rationing concerns in the market. Any indication of a below trend soybean yield would increase this buying action.
We are seeing a change in the interior market that is not uncommon for this time of the marketing year. This is the shift from old crop marketing to planting the new crop. Historically this would support basis values, but so far this year, basis support has been limited.
This is in part from the record grain and soybean reserves across the United States, but also from the fact buyers have been more aggressive when farmers do wish to market inventory.
Analysts continue to debate the Brazilian soybean production figure USDA released in the March balance sheets.
Brazil’s soybean production jumped a large 150 mb in that release, which was more than what officials in Brazil are projecting it at. At first this number was doubted, but now there are some who believe it will be even higher, and increase global production as it rises.
The real question now is not if global soybean output will increase, but how large it may get.
Regardless of how large the Brazilian crops are this year, there is a strong likelihood that they will increase in the future, especially on corn. Brazilian officials pegged yields at 47.2 bushels per acre on soybeans and 84.5 bushels per acre on corn for this year.
While this soybean yield is respectable, the corn figure leaves plenty of room for improvement. Even if acres do not change this could easily give Brazil larger crops in future years.
There are conflicting opinions when it comes to U.S. corn demand. There are analysts who believe ethanol manufacturing will continue to increase this marketing year and that ending stocks will be reduced as a result.
While this is possible, the fact this will generate additional distiller grains to compete with corn will limit its impact on balance sheets. It is quite possible these two could simply off-set each other, same as they did in the March balance sheets.
There is a change taking place in the U.S. livestock industry that could end up being a factor for the feed grains as well. The cash cattle market is trading at a significant premium to where it has been. As a result, feeders are not holding cattle to the record weights we have seen in recent months. This could easily cause a reduction to feed demand projections that were already in question.
Trade is becoming concerned with the direction managed money investors have been heading in commodities. Managed money has been leaking out of the grains and funds now have sizable short positions in both corn and wheat. Funds still have a long position in soybeans, but it has been trimmed considerably in recent weeks. Until this attitude changes it will be hard to maintain a rally in futures, regardless of what fundamentals tell us.
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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