The most changes in the domestic balance sheets for March took place in corn. The USDA increased its corn export forecast by 175 million bu and total demand by 225 million bu which was enough to reduce carryout to 2.17 billion bu. While a sizable reduction, we are still holding above the psychological 2 billion bu mark. Trade is already questioning this elevated export demand, as most had thought the previous estimate was already too high given our current export loading pace.
The updates that took place to the soybean balance sheets were much less. The USDA did increase soybean crush by 10 million bu, but decreased exports by 35 million bu. This was enough to bump soybean carryout to 555 million bu. This negative news more than off-set the friendly soybean numbers on the global side of the report.
As for domestic wheat, the only change to balance sheets was a 25 million bu reduction to exports. This bumped our ending stocks to 1.03 billion bu.
The greatest alterations in the entire report were on the global side, mainly in South America. As expected, the USDA decreased Argentine production by 3 million metric tons on corn and 7 million metric tons on soybeans. For Brazil the USDA decreased corn production 500,000 metric tons and increased soybean production by 1 million metric tons. The most interest in these numbers was on soybeans, where even though production decreased, it will still be enough to satisfy projected demand.
There is a difference in this year’s market to those in recent history. This is a difference in where grain reserves are located. The global supply of corn, soybeans, and wheat is more than adequate, but stocks are not necessarily where they are needed. This will make freight costs more of a factor in export purchases than in most years.
We are starting to see differing opinions on Argentine weather and what impact it has had on that country’s crop production this year. While daytime temperatures have been high, overnight temperatures have dropped considerably, alleviating stress on crops. Argentine soils have also not been depleted of moisture this year. These thoughts have started to bring into question some of the depressed yield projections we have seen.
One benefit we have seen from the concern over Argentine soybean production is a rally in soy meal values. In turn this has generated demand for U.S. distiller grains in both the domestic and global markets. This has been a great benefit for the ethanol industry as DDG inventories had started to back-up following China’s withdrawal from the U.S. export market. In many cases, the sale of DDGs is actually more profitable for ethanol plants than the ethanol is.
Trade is also closely monitoring the U.S. ethanol export market. We have seen predictions for the United States to have yearly ethanol exports 3.5 billion gallons by the year 2022. This is up considerably from the 1.37 billion gallons the United States exported in 2017. This is based off of the elevated demand by China and Mexico in recent weeks, which many other analysts claim is not going to be long-lasting however.
Not only is South American weather a factor in the market, but we are starting to see more interest on U.S. weather. Drought has been reduced in some regions of the south, but remains a factor in Plains States. At this stage of the year this can actually be bearish for the market, as a dry spring tends to be favorable for rapid planting. The question is what will happen as the growing season progresses, and even then, the market may be slow to react this year given recent crop sizes in less than perfect weather.
We have seen little selling pressure from South America recently and some analysts are trying to claim this is a sign of lower production. While this is a possibility, it may not be totally accurate. Currency valuations have had just as much of a factor as producers in South America are holding out for these to level out and ease pressure on their markets. We are also seeing limited selling from Argentina as farmers wait for tax changes that will increase their revenue flow.
Country movement of farm stored bushels has been up in recent weeks. Even with elevated deliveries, we have not seen much weakness in the cash market. Buyers and end users want to gain as much coverage as possible while this is taking place, as they know that within a few weeks we will start to see attention shift to spring fieldwork. At that time, it becomes very difficult to originate bushels from any sourc
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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