We are now at the point of the year when more attention will be placed on planting across the Corn Belt. This is because we are now past the insurance coverage point in most areas. While some producers do start their planting ahead of this date, many wait. Now is when we will start to get a clearer indication of how many acres may be seeded to which crop.
As always, we are already hearing debate over what impact delayed plantings may have on production this year, particularly corn. There are groups who claim that yield is already being lost due to delays to planting in some regions of the United States. While this may be true, research shows significant yield loss on corn does not happen until we get to mid-May. Several other variables can impact yield just as much as the planting date though, which makes it very difficult to predict yields at this time.
The U.S. ethanol industry received some very positive news this past week. According to the Renewable Fuels Association, ethanol blending topped the 10 percent blend wall in 2016. For the year ethanol blending averaged 10.04 percent in all U.S. gasoline, and has been over 10 percent since last October. Ethanol blending in January was a record at 10.41percent. The RFA says this is very good news, as many groups had claimed the 10 percent wall would never be cleared.
Even though the United States has seen elevated demand for its corn in the global market, the question is what may happen later in the marketing year. The United States is competitive with other suppliers through June. At that time, the South American corn crop is expected to hit the export market. At this time it is believed this will generate 500 million bu of competition for U.S. corn in the global market.
The United States is also expected to see elevated competition from South America for soybean exports this summer. What is an even greater concern is the possibility of already contracted soybeans being cancelled. The United States currently has 215 million bu of unshipped soybean sales versus 100 million bu a year ago according to the firm Advance Trading. If even just a fraction of these sales are washed out of it would be considered bearish given current soybean carryout estimates.
There is a division taking place in the commodity market that is becoming more noticeable. This is the separation of the cash market from the futures. When buyers need coverage they are now more willing to push basis values than in the past, which is having more of an impact on cash values. This can create more volatility in the cash market though, as once coverage is secured, basis is much quicker to weaken.
One of China’s main corn producing states has announced corn plantings will decrease by 1.6 million acres next year on top of the 3.3 million acre decrease that was seen this year. The initial reaction to this news is that China may have to increase corn imports to cover the decrease in production. While this is possible, these acres are low producing ones, and their loss will allow Chinese farmers to focus on higher producing land instead. This could actually increase China’s corn output, even with fewer acres.
There are developments in other regions of the world that could end up being a bigger benefit for the U.S. export market. Australian officials claim drought has cut sorghum production to its lowest level in 20 years. Palm oil reserves are also the lowest they have been in 20 years. These decreases could easily open the door for more corn and soy oil demand in the global market.
An issue that continues to plague the commodity market is a lack of fresh news. Nearly all news is currently factored into the market at the present time, both bullish and bearish. The next release of data that will be a market factor is the May balance sheets as these contain the first set of new crop supply and demand factors. Weather will also soon start to play more of a role in price discovery.
Another factor in today’s market, and a rather important one, is fund activity. Funds have established a sizable short position in the market right in front of the spring planting season. While there is a plentitude of bearish news in the corn complex, we could easily see a shift in attitude within a short amount of time. This would likely cause short covering and possibly fresh buying, and in turn a market recovery.
Trade is already starting to predict the amount of storage that will be needed this fall. Research shows the United States will need storage for 21.2 billion bu of corn and soybeans this fall, which is actually less than what was needed last fall. This figure was determined by using trend yields and USDA projected acreage, which will change as the year progresses though. This is concerning news for cash buyers who are already struggling to gain commodity ownership.
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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