Even though corn planting is reported as in its final stages across the Corn Belt, this may not really be the case. There are several reports of fields that have been seeded, but will need to be reseeded, particularly in the Eastern Belt. This is from the excessive rains and cold temperatures the crop was subjected to. The real question with this development is what impact it could have on total production.
We are at a point in the season where any unplanted corn acres are more likely to shift to soybeans if possible. It is not out of the question that some of these acres could go unplanted this year altogether. Any change on planted acres will be debated right up to the June 30 planting revisions, and likely beyond.
Planting pace is a factor in today’s market, but so is crop condition. The initial corn crop rating of 65 percent good/excellent on corn this year is the second lowest start in recent times. This immediately created a firestorm of opinions surrounding final yield potential. Most analysts claim this will put final corn yield close to 167 bushels per acre compared to current estimates for a 170 bushel per acre yield. While some are shrugging these numbers off, history shows us that in the past 19 years, the final crop rating has only been above the initial one time.
While production is the primary focus of today’s trade, demand remains just as much of a factor in price discovery. This is especially the case on corn, where exports point towards an annual sales number that will be 160 million bu greater than what the USDA is projecting. Corn exports could be even higher if Brazilian farmers withhold stocks from the global market such as they have done with soybeans. The primary reason this added demand has not impacted futures more than it has is the large supply of corn in the United States.
There are just as many questions when it comes to soybean demand. Exports remain strong on soybeans even though it was believed they would falter as the marketing year progressed. The lack of movement in Brazil is the primary reason buyers have kept coming to the U.S. for soybean coverage. Domestic soybean usage is less than hoped for though, and could easily decrease any increase we may see to soybean exports.
While the United States continues to see good demand for old crop soybeans, concern is building over the low demand we are seeing for new crop soybeans. So far, new crop soybean sales only total 106 million bu. With just three months until the start of the new crop marketing year this number should be almost three times that level. The current volume of new crop soybean sales is the lowest since 2008.
While much of the attention in this year’s market has been on the Brazilian soybean crop, just as much should be on the country’s corn crop. Brazil produced a record sized corn crop this year, which will allow the country to resume exports. It is quite likely this will impact U.S. corn demand, especially with Mexico. This may not show up until later in the marketing year though, as that is when Brazilian corn exports tend to take place.
Brazil will also impact U.S. soybean exports for the remainder of the marketing year. At the present time the United States is competitive with Brazil in the global soybean market. This is not just from the futures market, but also from factors such as currency valuations. This creates a vast amount of moving parts that the complex needs to closely monitor.
The United States has a large volume of unshipped corn sales on the books, which are starting to be noticed by more traders. Current unshipped sales on corn are over 550 million bu. Research from the firm Advance Trading shows that unshipped corn sales have only exceeded 500 million bu at this time in five of the past fourteen years. As a result, it is not out of the question that we could see a large volume of sales either roll to new crop or be washed out of later in the year.
While we have not heard much about it recently, trade is still very interested in what is taking place with the El Nino weather system. We have not seen much change in the strength of the El Nino lately, but there are indications it will continue to increase in power. According to current models, the El Nino has a 60 percent chance of reaching moderate strength by this fall. This has limited the volume of risk premium in today’s market, as there is a strong correlation between El Nino events and better than trend yields.
This spring is going to go down as one of the wettest in both Iowa and Illinois. So far, the spring of 2017 has been the third wettest in recent times, with 2013 being the worst. That year the wet conditions did impact both crop production and quality in these states. While we could easily see yields reduced from the wet soils again this year, futures tends to be much slower to react to yield loss in wet years than in a drought.
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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