Corn Belt shows division
There is a shift taking place to the division of the U.S. Corn Belt. Historically this has been divided by east and west, but we are now starting to see a Central Corn Belt take shape. The difference between this and the others is that it is more defined by the export market due to the Mississippi River. The east and west are more driven by interior demand and in many cases separate themselves from not only exports, but from the futures market as well.
Basis values tend to vary a significant amount from one region of the Corn Belt to another as well.
We continue to see correlations between the U.S. corn planting pace and final yield potential. According to data collected over the past several years, there is not a well-defined pattern that can be established between planting and yield. In 2009 for example, corn planting was slow and final yield was still 109 percent of trend. Something that is more noticeable is that slow planting can lead to slow maturity, making the crop harder to store the following year.
The United States has seen record demand for its corn in the global market in recent weeks. There are analysts who believe this should be offering the complex more support than it is. The primary reason corn futures have not reacted as much is that corn demand is expected to drop off this summer when South America starts its export program. Another is that even with elevated demand, U.S. corn reserves are in no danger of reaching a level that would need to be rationed.
A factor that is affecting soybean demand, and corn as well, is the number of animals on-feed in the United States. The U.S.D.A. is using a 7 percent increase in feed demand this year over last year. This is being questioned, as animals on-feed are only up 2 percent from a year ago. Even if feed demand is over-estimated, it may not show up in balance sheets until the end of the marketing year, and possibly into next year.
Even though China officially lifted its ban on U.S. beef last September, we have yet to see any trade between the two countries. China placed a ban on U.S. beef imports following the 2003 discovery of mad cow disease, and has held it since. Chinese officials are predicting a 17 percent growth in beef imports this year, which could be a great benefit for the U.S. livestock industry now that the restrictions have been dropped. In turn, this could increase livestock production and feed grain demand as well.
While mostly benign, there are some forecasters who are showing elevated concern over long-range weather outlook models. These show more of a shift towards a warmer pattern for much of the United States for this coming summer. The concern associated with this is that temperatures will remain elevated during overnight hours. History shows that this is when yield loss takes place.
There remains talk in the market over China shifting acres from corn to soybeans this coming year, and what it may mean for the global market. In all reality, this may have little impact on the global market at all. Even with a projected 8 percent increase to soybean plantings, China will need imports to satisfy demand. China also has a large enough volume of corn in reserve that the decrease in plantings will not increase imports any time soon.
The greatest unknown in the situation is China’s corn reserves. It is thought China is holding nearly 10 billion bu of corn in reserve. This is equal to one year of Chinese corn demand. Even with these large reserves China is still likely to buy corn for import for blending, as the quality of their domestic inventory is questionable. Logistics also make more sense for imports in certain regions rather than transporting the grain.
At times we forget the main function of the commodity market, that being price discovery. At times this can cause lack-luster trade such as we have seen in corn futures in recent weeks. Given current stocks and projected demand, it appears as though corn futures are in line with historical stocks to use trends. Until one side of this equation changes, the sideways trade pattern we have seen in corn is likely to continue.
The same functions is taking place in the soy complex. The soy complex is more fragile than the corn complex though, and it will not take much of a change to either supply or demand to impact futures. If nothing changes we could easily see soybean values trend sideways just the same as corn. A minimal two bushel per acre change in yield could mean the difference between futures trading $2.00 higher or lower however.
Karl Setzer is a Commodity Trading Advisor/Market Analyst at MaxYield Cooperative. His syndicated commentary and market analysis is available daily on radio, in newsprint and on the Internet at www.MaxYieldCooperative.com. 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.
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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