Even though planting is just wrapping up across the United States, we are already seeing private analysts release their own yield estimates. For corn, we are seeing privates project a yield of 169 bushels per acre. The soybean yield that is being projected is 49 bushels per acre. The USDA is projecting yields of 170.7 bushels per acre on corn and 48 bushels per acre on soybeans. These are all very premature though, and will undoubtedly change many times as the growing season progresses.
One factor that will greatly impact crop size is acreage. It is believed that upwards of 1 million acres that were intended for corn production this year will shift to soybeans due to the wet spring conditions. Just the possibility of this has weighed on soybeans as it would increase total production a sizable amount. While this shift may show up in the June acreage revisions, it is possible we will not know the real acreage number until post-harvest.
We are seeing a large number of new crop supply and demand possibilities released. Given the likelihood of corn acres decreasing, many analysts have reduced their carryout estimates. While this seems positive, most still remain above the psychological 2 billion bu mark. Until we can get corn reserves below this level it may be difficult for futures to appreciate very much from where they are.
Just as much uncertainty is surrounding soybean balance sheets. It is widely believed soybean acres will increase in the June planting revisions. Even with a trend yield this would be enough to push new crop ending stocks to 600 million bu given current demand forecasts. This alone has some analysts lowering their soybean price forecasts as much as $1.00 per bushel from current values.
Chinese officials have announced that they will be more closely monitoring soybean imports for GMO content. China allows GMO soybeans to be imported for feed and industrial uses, but not for food grade products. There are concerns in the country that soybeans have been crossing this line in recent months. Oddly enough, this comes at the same time China reports have a surplus of soybeans in reserve and is posting negative crush margins.
China continues to offer corn out of its domestic reserves for auction. The early auctions of this corn were surprisingly high, with nearly all offerings being bought. Last week saw this demand slow though, with only 25 percent of available corn being purchased. The question now is if this was just a bad week or if demand is covered. There are also thoughts that China initially offered high quality corn and they no longer have as much for buyers to pick from.
There is a shift taking place in the global commodity market that is confusing many traders and analysts as well. It is becoming apparent in today’s market that price is not as much of a determining factor when making commodity purchases. Grain quality and timely shipments have caused buyers to pay more for needs in many cases recently. We are also seeing politics have more of an impact on global trade, which is making it harder to project demand than in years past.
The United States may soon see elevated competition in the global ethanol market. China has been manufacturing a large volume of ethanol in an attempt to work through its large corn reserves. As a result, the country has reportedly over-produced ethanol, and may have enough to export. Whether this would happen or not comes down to price, and what the fuel will be offered for.
Competition for business is building between the United States and Brazil in the global soybean market. At the present time Brazil is considerably cheaper than the United States for spot soybeans. Soybeans from the United States into Asia have a lower freight cost though, which makes the two sources nearly equal. This could limit how many buyers shift away from the U.S. for soybeans due to price alone.
The United States and Brazil are also competing for a share of the world corn market. This is a little tighter than for soybeans. Brazil has much more corn to export than a year ago, and buyers seem more willing to take that grain over U.S. offerings, regardless of price. Both suppliers are seeing elevated pressure in the Asian market this year as well, which is weighing on what both can ask for their corn.
Even though the data is a week old, trade is still talking about last week’s balance sheets, particularly the global corn supply estimates. The USDA is forecasting a 194.3 million metric ton new crop global corn reserve, which is a 30 million metric ton decrease from this year. While this number is more than adequate, it is not hard to picture a situation where rationing could easily develop. As a result, corn futures may become more sensitive to adverse weather until production rebounds.
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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