As expected, very few changes took place to the domestic balance sheets in the April supply and de-
mand report. Corn carryout was left un- changed from March at 2.32 bb. Soybean carryout increased 10 mb to a 445 mb total, mainly from a decrease in residual usage. Wheat ending stocks increased a minimal 30 mb to a comfortable 1.16 bb.
Even though few alterations took place to U.S. ending stocks, there were some modifi- cations to demand worth noting. One is that the 50 mb increase to ethanol demand on corn was off-set to an equal decrease to feed usage. What surprised trade is that exports were left unchanged even though cumulative data points towards a higher figure.
On soybeans we had a larger seed de- mand figure due to expectations for elevated acres for this coming year, but this was more than off-set by lower residual usage. This has some analysts thinking last year’s soy- bean crop has been underestimated.
More changes were made to the global ending stocks. The USDA increased world soybean carryout 3 million metric tons to a large 111 million metric tons due to larger crops in South America and higher carryout in the United States. World corn reserves were bumped up 2.3 million metric tons to 223 million metric tons, and again was from larger crops in South America. The world wheat supply also grew by 2.3 million met- ric tons to a large 252.3 million metric ton total.
The Brazilian firm CONAB also updated its production forecast this week, and in- creased soybean output for the fourth con- secutive month. CONAB pegs the Brazilian soybean crop at 110.16 million metric tons. Soybean acres declined slightly from last month, but yield increased by 1.4 bushels per acre. For corn the firm is projecting a 91.47 million metric ton crop. Not only did CONAB increase corn acres from a month ago, but bumped yield 1 bushel per acre as well.
Not only did we see updates to supply and demand numbers for grains and soybeans this week, but for U.S. beef and pork as well. The USDA is projecting U.S. beef exports to expand by 6.9 percent in 2017 which is good news as beef production is forecast to grow 5 percent. Pork exports are forecast to increase 8.4 percent this year, and will help off-set a 4.6 percent increase in production. The best news for the livestock industry is that imports are forecast to decline by 9 per- cent on beef and 4.3 percent for pork.
One of the greatest unknowns in the mar- ket, and one that is a factor every year, is weather. There are an increasing number of forecasts that call for the development of an El Nino this year, which history shows is beneficial for yields. Given the current trend yield estimate on corn and typical deviations in such years, the U.S. corn yield could fall between 175 and 185 bushels per acre if an El Nino forms. Using current demand, this would leave the United States with a new
crop corn carryout between 2.5 and 3.5 bb.
The same outlooks are being made for soybeans. A typical deviation from trend in an El Nino year would give the United States a soybean yield near 50 bushels per acre. Using our present soybean demand this would put new crop ending stocks from 550 to 650 mb. The difference be- tween corn and soybeans is
— — —
8.62 8.66 — 8.62 8.66
Soybean futures May 17
July 17 Aug. 17
Elec. live cattle April 17
it would take much less of a production change to affect soybean stocks to use.
Contrary to several reports, corn planting and development in southern states is actu- ally running ahead of average. In fact, it is quite likely the United States will have corn ready for harvest from this region by mid- summer. Given the lack of old crop corn movement in the United States, this could easily cause logistic issues across that re- gion. This may spill over into the global market, as South America will likely be at the height of their corn export program at the same time.
Talk is increasing in the market over the possibility of acres now shifting back to corn production from soybeans. This is a result of the ratio tightening between corn and soy- bean futures. While this can impact planti- ngs, the real determining factor in any acreage shift at this stage of the year is weather. Even then, it would be at least an- other month before any sizable change would take place.
Even though the United States has just started its planting season and South Ameri- ca is still harvesting, trade is already looking forward to next year’s production. The most talked about factor is financing and credit. There is a belief in the marketplace that fi- nancing will remain an issue next year and production will suffer as a result. The obvi- ous concern is that this will cause a short-fall in commodity production and tighter global stocks.
While this is possible, tighter credit does not necessarily mean reduced production. We have started to see farmers around the world use fewer inputs to produce crops, but higher quality ones. This is not just for seed, but on fertilizer and chemicals as well. In many cases this has actually raised produc- tion on fewer acres.
Karl Setzer is a commodity trading advi- sor/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 commen- tary are solely those of Karl Setzer. Data used for this commentary obtained from var- ious sources believed to be accurate. This commentary is intended for informational purposes only and is not intended for devel- oping specific commodity trading strategies. Any and all risk involved with commodity trading should be determined before estab- lishing a futures position.
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