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KARL SETZER

By Staff | Jul 21, 2017

As expected, the USDA left corn yield unchanged in the July balance sheets. Production still increased as the larger acreage numbers form the June revisions report was factored in. We did see old crop feed demand on corn reduced by 75 million bu, but new crop increased by 50 million bu, leaving the United States with an adequate 2.32 billion bu new crop carryout. This was an increase of 210 million bu from June.

As with corn, no changes took place to soybean yields either. When acres were adjusted this left the United States with a projected 4.26 billion bu of production. The USDA did increase old crop soybean exports by 50 million bu which more than off-set the 10 million bu decrease to soybean crush. Soybean carryout is now projected at 410 million bu for old crop and 460 million bu on new crop.

The real surprise in this report came in the wheat market. The USDA only reduced total wheat production this year by 64 million bu, a much smaller reduction than what was expected. The USDA also reduced wheat demand by 45 million bu to given us ending stocks of 1.18 billion bu on old crop and 938 million bu on new crop. These were both larger than what was published in June, when declines had been expected.

Trade was quick to dispute these numbers though, mainly the yield figures. This is in response to the weather the crop has been subjected to since data was collected for the July release. Much of the data that was used to compile the July balance sheets was obtained in June before conditions turned severe for the Corn Belt. As a result, many are expecting smaller production figures next month and beyond.

We are at a stage of the marketing year where we tend to see a shift in market focus. While production is still a main source of interest, more attention will start to be placed on demand. Demand has been questionable in recent weeks, and started to temper some of the strength the market had. This is especially the case on new crop soybeans, where bookings are a record low for this point of the marketing year.

Trade is becoming increasingly concerned over new crop demand for U.S. corn and soybeans. While there is plenty of time for new crop demand to increase, sales are well behind their usual pace for this time of the marketing year. Current sales indicate new crop sales will be down 36 perrcent on corn and 14 percent on soybeans from this year. This lack of demand is the result of buyers opting to cover needs with South American offerings rather than those from the U.S.

We are starting to see a build in vessels in Brazil as the Safrinha harvest progresses. The harvest of this corn is approaching 35 percent and exports are starting to take place. This will soon start to affect the demand we are seeing for U.S. corn in the global market. At the same time it could easily benefit U.S. soybean demand, as ports in Brazil tend to only load one commodity at a time.

There is a wide range of trade estimates being released to Chinese corn production this year. The USDA currently estimates the Chinese corn crop at 8.46 billion bu. Sources in China claim the crop will be smaller, with some as low as 7.7 billion bu. Given current demand this would reduce carryover to the lowest level seen in China since 2012 according to some analysts. While this may be true, it is unknown as to how much corn China already has in storage to help buffer this reduction.

One area where we are starting to see improvements in China that will soon affect the global corn market is yield. China planted 91 million corn acres this year, nearly equal to the acres planted in the United States. The difference between the two countries is that China’s corn yield is just 95 bushels per acre. This number is gradually climbing though, and before long, will likely equal that of the U.S.

We are seeing more interest in what will be needed for fall storage this year from both commercials and producers alike. Producers are not very willing to move any more of their old crop than they need to right now for two main reasons. One is price, but also because they are still unsure of potential yields. Many claim they will hold old crop inventory and sell in in new crop months to capture market carry.

This is a concerning development for commercial storage facilities. Many are sitting on inventory without ownership, and cannot move it to make room for the upcoming harvest. It is also quite possible this could be a year when we see old crop bushels move right before harvest, which would flood the cash market and not allow time for facilities to empty out. As a result, country basis values are becoming more volatile than in many years.

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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