Sales of cash corn remain historically light across the United States. This is from a variety of reasons, but one that is getting the most attention is the use of the federal loan program. Entries into the nine-month loan program since October 1st are well above recent years which is generating cash flow for many producers. Others are still working off defer pay contracts and heavy fall deliveries which were mostly bushels that were not expected to be produced.
Soybean sales since the end of harvest have also been light. This is especially the case for the Western Corn Belt where stocks are 164 million bu more than a year ago. A large 75 percent of these soybeans are being held in on-farm storage facilities. This has caused basis values to firm more than expected as farmers are unwilling to liquidate much inventory at this time.
As we approach the spring planting season we are hearing more opinions on what we could see for planted acres. Many economists believe we will see a slightly higher soybean acreage figure this spring as futures favor the planting of that crop. While this is true, there are several other factors when determining acreage, including local cash bids and yield potential. If just small adjustments are made to yield they can impact projected returns a significant amount.
We have also started to see producer based surveys released regarding new crop acreage intentions. Interestingly, most of these indicate an acreage division very similar to what the United States had a year ago. A few are projecting an even split with 90 million acres on both corn and soybeans.
One of the greatest unknowns when it comes to acres is what may take place in wheat. There have been several opinions that we could see wheat acres decline this year, but now analysts think we could see wheat acres increase. Some of these forecasts are for upwards of 1 million more wheat acres than earlier predicted. The general consensus is that these acres will be taken away from soybeans in the fringe areas.
The United States could see less competition in the global corn market this marketing year than expected. This is from recent decreases to production forecasts for competing corn sources in the global market. Ukraine is one of these where production and exports have both been decreased by 2 million metric tons recently. Another country that is forecasting a smaller corn crop is South Africa as that country is experiencing a widespread drought.
One of the greatest unknowns in the global corn market remains the Brazilian Safrinha crop. There are several opinions that the Safrinha crop will be down this year due to the delays to soybean planting in Brazil. While this is possible, current weather forecasts and a rally in corn values could encourage planting. Trade will closely monitor corn seed sales over the next few weeks to try and get a better idea of intended corn plantings.
We are seeing just as many forecasts for Brazil’s soybean production this year, even though harvest is getting underway. The USDA is currently forecasting a Brazilian soybean crop of 110 million metric tons. Privates in Brazil continue to publish larger estimates though, with some approaching 118 million metric tons. If correct, this would more than negate any losses to the Argentine crop.
One of the primary reasons for the wide range of Brazilian soybean production estimates is from acreage. Some firms are using a much higher acreage number than others, with the range approaching 5 percent from high to low.
Dry weather in South America is having more of an impact on today’s market than just for soybean futures. Argentina is the world’s leading exporter of soy meal. Since the drought began we have seen limited soybean selling interest in the country which is starting to cause concern over soy meal availability. Thoughts are this could bring additional export business to the United States and benefit our crush industry. It is also possible this could generate more demand for our distiller grains in the global market.
The recent talk we have heard surrounding dry soils in Argentina may be overdone however. This is from the fact that Argentine soils are better able to hold water than most people are aware of. Argentina is also reported to have abundant subsoil moisture levels that are benefitting crop development. Crop scouts in the country claim any significant production loss will come later in the year as a result.
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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