The domestic old crop corn carryout number was little changed from the April report to the May report with 2.3 billion bu of carryout. The initial new crop ending stocks estimate if for 2.11 billion bu, which was in line with trade estimates. Global corn carryout is now pegged at 224 million metric tons, but the new crop projection is for 195 million metric tons of reserves. This reduction to global stocks has given the corn complex some much needed support.
One of the biggest changes to corn demand from old to new crop was a 350 million bu reduction to exports. Even with this reduction, trade expects ending stocks to shrink 185 million bu. Some analysts are taking this as a sign the 2.11 billion bu carryout estimate may be the largest of the new crop year. While possible, many things will change that will affect this figure.
Old crop soybean carryout in the United States was almost steady at 435 million bu. The new crop number was less than expected though, with just 480 million bu projected. The global numbers on soybeans were slightly negative, as old crop reserves are forecast to increase to 90 million metric tons. The new crop soybean ending stocks estimate is at 88.8 million metric tons, which was above trade estimates.
Very few changes took place to domestic soybean demand from year to year.
Of all of the wheat numbers released, the only one that was positive for trade was a reduction in new crop ending stocks to just 914 million bu from this year’s 1.16 billion bu. Global wheat stocks are expected to rise on old crop though, and be even larger next year.
While most attention was on the U.S. supply and demand numbers this week, China also released their new crop balance sheet estimates. China projects 2017 corn acres at 88.6 million and production at 231.2 million metric tons. Chinese soybean acres are forecast at 19.5 million and crop size at 14.1 million metric tons. These would be decreases in production of 3 percent on corn but an increase of 12 percent on soybeans. China still expects to see soybean imports to rise 4 percent though, and total 93.2 million metric tons.
We have recently seen a major shift in the global soy complex. For the past few years soybean supplies have shrunk as demand has outpaced production. The opposite is taking place this year, with large crops being reported in many regions of the world. As a result, soybean values have been pressured, and are trading under the level they were a year ago.
This reduction to soybean carryout has also caused futures to rally in the month of June in each of the past two years. Given adequate reserves and the likelihood they will increase this year, it is doubtful we will see as much price recovery as in the past.
While we are in fact seeing a build in soybean reserves, there are regions of the domestic market where stocks remain tight. One of these is in the state of Iowa. Soybean demand in the state is projected to total 583 million bu this year, which would be 9 million bu more than the state’s production last year. The question is if the state will need to import soybeans to cover this shortfall in stocks, or if products such as distill grains can fill the void.
There are analysts who believe the world soy market will continue to struggle. This is coming from a variety of reasons, including elevated production and reports that South America will expand soybean plantings next year. While this is several months from becoming a reality, the simple thought of it and the soybeans it will generate are weighing on deferred futures. Even if the soy complex does attempt a rally in this environment, it may simply uncover more selling pressure.
Fundamentals are more mixed for the corn complex. U.S. corn acres are going to be down this year, but trade is expecting a record crop out of South America. This could easily increase global reserves even if U.S. stocks tighten. There is also a possibility in this scenario that we could see export demand drop enough to see higher U.S. carryout, even with fewer acres if yield is trend or better.
One of the greatest differences between this year and those in recent history is the ongoing lack of weather premium in the commodity market. This is from the relatively benign weather conditions the United States has had for the past several weeks, and from forecasts that indicate more of the same to come.
Traders will closely monitor this though, as even though U.S. commodity reserves are adequate at the present time, it will not take much of a scare to cause a rally. Given the fact funds are heavily short in the market, this could cause an over-reaction to the upside, and create a favorable marketing opportunity.
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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