There is a factor in this year’s crop estimates that is being over-looked. When the USDA compiles data for supply and demand reports it uses information from the entire United States. Many privates only use data from the main production states, usually the same ones that are used in weekly progress reports. Record yields in these fringe states are making up for losses in other regions, and elevating national production.
Another figure that is being overlooked in nearly all estimates this year is acreage. The USDA only uses acreage that is in federal programs when projecting production. This is usually 3 to 4 percent fewer acres than what are really planted.
If we split this difference at 3.5 percent and use current yield estimate, it gives us a sizable cushion in current production forecasts. This factor points towards 508 million bu of corn and 153 million bu of soybean production that is currently unaccounted for.
When it comes to private analysts projecting corn yield, ear weights are the greatest deciding factor. The USDA is currently using the third highest ear weight on record in production estimates. Many analysts are in disagreement with this, and feel final ear weight will be lower than what is being used. This is not uncommon, especially in drier than normal years such as this one.
While production is a main point of focus in today’s market, trade is placing just as much interest on demand. Demand is growing on US corn, which has been beneficial for that grain. New crop exports have increased for the soy complex as well, but there are thoughts this is simply from old crop sales that will be rolled forward. Bottom line is we need to see ending stocks decrease on both corn and soybeans to see our market appreciate in value.
Regardless of how it happens, one thing this market desperately needs to make a turn-around is a reduction to stocks. Even with a slight reduction to yield in the latest balance sheets, new crop corn reserves are forecast to remain above 2 billion bu. The same is true for soybeans, where new crop ending stocks are increasing, and closing in on the 500 million bu mark.
Even though harvest has yet to begin for much of the United States, trade is already looking forward to next year’s potential production. A quick once-over of the market would indicate farmers will see a better return if they plant soybeans over corn. There is already talk in the market that we could see an even greater soybean acreage number next year if this does not change. While this is a possibility, it is hard to fathom the United States seeing much of a decrease in corn plantings from this year.
The most attention on acres this coming year will likely be in the Upper Plains, mainly the Dakotas. This region suffered the worst of the drought conditions this year which cut both corn and soybean production. As a result, we could easily see a rebound in wheat plantings in that region this year. That said, any reduction to acres may need to be sizable to impact the market given our ample supply of old crop reserves.
South America is also preparing for its upcoming planting season. The most attention right now is on Argentina where officials are predicting nearly a 10 percent increase in corn acres. If correct, this would raise Argentina’s corn output by an estimated 6 million metric tons. While this does not seem like a lot, it is enough to add to an already well-stocked global corn supply.
The real unknown in South America is what will take place with Brazilian soybean production. For several months we have heard that Brazilian farmers will reduce soybean plantings this year. At first this seems positive, but the reality is it could have little impact on actual production. If farmers focus all of their time and inputs on fewer acres, total crop size could be just as large as last year, possibly larger.
Private firms in Brazil claim acres will be unchanged this year, but total production will drop due to a return to normal yields.
One of the biggest questions surrounding Hurricane Harvey is what the impact will be on Texas agriculture. As far as production, any loss is expected to be minimal. The real impact may be on logistics, both for grains and livestock. Deliveries of both are expected to be down in upcoming weeks. The storm is also expected to disrupt exports for the next several days as it moves through the Delta region.
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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