We are at a stage of the marketing year where a psychological shift in market attitude takes place. This goes from old crop stocks and demand to more emphasis on new crop production. As a result, we can see volatility start to build in new crop contracts.
More analysts are releasing acreage and production estimates for this coming year in the United States. Several of these have reduced their corn acreage estimates by 1 million as economics favor soybean production. If corn yield holds close to this year’s and demand does not change, this loss of acres would still leave the United States with a 2.3 billion bu corn carryout next year. This points to a continuation of the current sideways trade we have in the corn market.
The same scenarios are playing out in the soy complex. If we see an increase in soybean plantings of 1 million acres and a similar yield to this year, we could easily see a much larger carryout. Some estimates are for upwards of 900 million bu of soybean ending stocks this coming year. If currently demand is not fully reached, to see soybean carryover above 1 billion bu is possible.
One factor that could easily impact acres this year is the cost of production. While there is a slight advantage to soybean production over corn, it is not as great as it was in recent years. This is mainly from the cost of raising corn decreasing in recent years and leveling out at respectable levels. It currently costs $68.00 less to produce an acre of corn than it did in 2014 according to a study from Iowa State University.
In just a few short weeks we will start to see early field work take place in the Deep South. This may receive more attention than in most years as it could give the market a better indication of possible acres. Not only is this for possible changes between corn and soybean plantings, but possibly for acres shifting from wheat into corn or soybeans as well. It is also not surprising to see higher acres of corn in dry springs, so any continuation of the aforementioned drought will be a factor in acres as well.
As we approach the spring season trade is starting to pay more attention to the drought conditions across the United States. At the current time just over 50 percent of the United States is suffering from some form of a drought. Many analysts claim that since this is during the winter months it is not a concern, but that is not necessarily true. The real question is how much the market will react to any weather threat this year given last year’s yields in less than perfect conditions.
The U.S. soy market is finding support from solid crush numbers. Cumulative soybean crush this year is up 2.1 percent from a year ago, which is right in line with expectations. While this is good news for the soy complex, product demand is raising some questions, mainly for soymeal. Soymeal exports for the year are down 6 percent from last year when a 5 percent increase has been forecast. This is being credited in part to an elevated world supply of distiller grains.
Global trade agreements continue to be a main source of debate in today’s market. There are several analysts who do not believe these will impact U.S. trade a significant amount of they are abandoned.
Others strongly disagree and feel that any change in trade relations will hurt the United States given the fact we are already seeing more competition in the global market from South America. Buyers have more options in the market now than before these trade agreements were established, making them even more important.
Country movement of farm stored inventory remains light across much of the interior market. Producers across the Corn Belt continue to hold out for higher values before extending their sales. Others have had deferred money paid out which is generating cash flow, as is the ongoing use of the nine-month loan program. While this has caused basis to firm across much of the interior market, most of the end user needs are being covered with commercial stocks.
Soybean harvest is starting to advance in Brazil. Now that this is underway we may gain some insight into how much double cropping may take place in the country. Initially it was thought we would see very little of this, and Brazil’s corn production for the year would be down. Conditions have improved since then though, both weather and financially, and we may not see much of a yearly decease to double cropping at all.
We are starting to see mixed responses to Argentine production estimates. Several analysts have reduced their estimates on the Argentine crops due to drought conditions, especially in soybean producing regions. While these regions have been drier than liked, we are now starting to hear some conflicting reports. The main ones being that the worst drought conditions are not in areas where high production takes place. In those areas, the crops are not suffering from nearly as much stress.
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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