Even though harvest has wound down for the year, yield reports across United States continue to give little real direction on total crop sizes. In many cases producers are stating that yields were better than expected, although well below a year ago. There are some however that are claiming yields are actually better than a year ago, mainly on corn. This is going to keep debate over crop size going right up to the final numbers in January, and probably beyond.
Not only is yield causing debate in today’s market, but so is crop quality. This year’s crop held more moisture than most in recent history and need to be dried artificially. There are legitimate concerns that this could lead to elevated cases of damage in storage facilities as the marketing year progresses. Another factors in crop quality is high test weight, mainly on corn, which can add to crop size.
There is one trend in this year’s crops that is becoming widely evident. Producers across the Corn Belt who applied fungicide to their corn and soybean fields reported higher yields than untreated fields. In many cases this added 10 bushels of soybeans and up to 30 bushels of corn to average yields. Even at today’s lower market values this generated a substantial amount of revenue per acre.
Basis values across the interior market rebounded quicker this year than in most. This was not surprising in areas where yield was less than hoped for, but the same took place in regions with high yields. Farmers this year are opting to store as much inventory as they can, which is preventing as much from moving as expected.
Farmers are also utilizing the nine-month loan program for income this year rather than making sales, which is further reducing movement. Buyers are concerned that this could greatly reduce the availability of free bushels later in the marketing year, even with large stocks.
Trade is very interested in how much fall tillage and field work is completed this year. It is not uncommon to see less of this in years when harvest is delayed. This puts more emphasis on spring field work and how any delays there may impact acreage. While this can in fact influence plantings, the fact that today’s equipment allows for rapid seeding has greatly reduced these concerns.
The U.S. soybean market is in a tough spot, and one that could last for some time. More than ever the United States needs to remain competitive with South America on soybean values. This is from the fact that U.S. soybean quality is under that of South America’s this year, and a higher value cannot be asked for in the global market. This is one of the leading factors that is preventing a rally from taking place in the soy complex.
One bright spot for the world soy complex came out of the recent Global Grain Outlook conference. It is now believed that world soybean consumption will continue to increase for the next several years. In fact, some economists believe world soybean demand will rise by 238 percent over the next 20 years. The region of the world that is expected to see the most increase in usage is India as that country starts to go through the same economic improvements that China has recently.
Trade is also closely monitoring China’s corn consumption reports. Chinese officials have stated they wish to increase ethanol manufacturing in the country and the immediate reaction was that corn demand would increase as well. This may not be the case however, as China can manufacture ethanol out of others sources at a lower cost, with coal being a leading alternative. This will alter many corn demand outlooks, not just in the United States, but around the world.
Trade is looking at last year’s price action on corn and soybeans from this point forward and comparing it to this year. Last year, July corn futures traded in a 38 cent range from this point forward through the expiration of the contract. July soybeans traded in a $1.92 range over the same period. Given current fundamentals, a repeat of this pattern could easily take place.
We are already starting to see early year-end planning take place in the commodity market. Many traders have indicated they will shore up positions early this year and wait until early next year before re-establishing them. Given the fact that funds are heavily short in the grain contracts, there are hopes that this will instigate buying interest and higher markets.
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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