The USDA released its updated acreage numbers, with some sizable changes. Corn plantings are forecast at 90.9 million acres, 1 million more than predicted in March. Soybean acres increased 100,000 to a total of 89.5 million. The surprise came from harvested acres which are at 83.5 million on corn and 88.7 million on soybeans. This is a 1 million acre increase on corn and a steady number on soybeans from the March intentions report.
This big surprise in acreage was on wheat. Total wheat acres planted in the United States are now pegged at 45.7 million, 300,000 fewer than the March intentions number. The harvested total on wheat is just 38.1 million acres, a record low total.
The big surprise of the report came on stocks. Corn reserves as of June 1 totaled 5.23 billion bu, 500,000 buy more than the same date in 2016. Soybean inventory on that date totaled 960 million bu, and while 90 million bu more than a year ago, were 20 million bu less than the average trade estimate. Wheat stocks on June 1 totaled 1.18 billion bu, more than trade expected and 204 million bu more than a year ago.
The International Grains Council updated its world production forecasts this week. The IGC has upped its 2016/17 production by 5 percent from a year ago to a record 2.1 billion metric tons. This is mainly from the large corn crops being harvested in South America. The IGC believes next year’s grain production will drop by 4 percent though, as the U.S. is forecast to harvest a smaller crop.
U.S. corn is finding competition in the global market other than just from alternative corn producing sources. In recent weeks we have seen elevated competition from feed wheat. This is more in the global market than domestically. Not only is feed wheat abundant and can be booked at a lower value than corn, it carries a higher protein content, which reduces the need for products such as soy meal as well.
There is one primary question in the market that is currently driving futures; that being if the crops are getting smaller or larger. The greatest determining factor in this is weather. There are reports from across the Corn Belt that the wet spring followed by hot, dry conditions reduced final yield potential. While this is quite possible, the real question is how much yield was taken off, and more importantly, how the crops look in the remainder of the United States.
Concerns are building over U.S. soybean demand. In two of the past three weeks China has cancelled soybean purchases from the United States. China has also only booked one new crop soybean vessel over the same period. If we add in the poor demand we are seeing for new crop soybeans, this is generating ideas that total demand is being over-estimated at this time.
China is still importing a large volume of soybeans, they have just changed origination points. China imported a record volume of soybeans in the month of May, with unloadings totaling 25 percent more than the same month a year ago. Of these soybeans, 83 percent came from Brazil, and just 15 percent were sourced from the United States. This is really not that surprising as new crop soybeans from Brazil do tend to dominate the world market during the summer months.
Trade also remains concerned with the current crush pace we are seeing on soybeans. Cumulative crush for the marketing year is running a slim 7 million bu ahead of a year ago. This compares to expectations we would see 15 million bu more soybean usage. While this seems like a minimal amount, it adds to an already growing U.S. soybean reserve.
Heading into the end of the marketing year, trade is much less concerned over corn sales being cancelled than soybeans. The United States currently has 130 million bu fewer unshipped corn sales on the books than a year ago at this time. Conversely, the United States has a record volume of unshipped soybean sales on the books. One factor that is negative for both commodities is that we are not competitive with South America on prices, which could easily cause cancellations to take place.
While sales have been favorable for corn, analysts are questioning domestic demand, same as in soybeans. Domestic corn demand has been questioned all marketing year, and could easily off-set any gains in exports. Another concern with domestic corn usage is that buyers are starting to have enough coverage for the remainder of the marketing year. Some corn buyers have 45 days of corn coverage which will limit their desire to push for sales, especially in southern regions.
Today’s market continues to be heavily influenced by outside markets, mainly currency values. In recent weeks we have seen valuations change in currencies that have taken demand away from the United States. The most notable of these have been in South America, particularly Argentina. Not only is this affecting U.S. export sales, but some that would normally go to Brazil as well.
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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