We are starting to see more and more interest in what the United States may see for yields this coming year. In the USDA Outlook Forum a corn yield of 174 bushels per acre was predicted, a large 3.3 bushel per acre increase from last year. While this size of an increase is higher than most we have seen, there has been a trend of elevated corn yields ever since 2013. This yield estimate is also under our final yields in the two most recent crop years.
Trade is also questioning the soybean yield that has been estimated. The initial soybean yield estimate is for 48.5 bushels per acre, which is actually just under what some analysts had expected. Near perfect growing conditions to finish out the production season are the primary reason we have had better than expected yields on soybeans. We need to remember that the final soybean yield has topped the initial estimate in each of the past four years.
A greater debate is what we could see for planted acres in the United States this year. This is coming in part from uncertainty in the sorghum market. Given recent trade concerns with China and questionable demand there are thoughts we could see 500,000 acres shift away from sorghum production. While not a huge amount, these will add to already large production forecasts.
As we approach the spring planting season we are seeing more attention placed on the corn/soybean price spread. This has narrowed considerably in recent weeks and now favors soybeans less than it did. At first glance it is thought this would increase corn acres, but that is debatable. This is because the projected return on both corn and soybeans has risen. The only acres this may affect is ones without inputs already applied or booked, and that may be a relatively small number.
The United States is at a point where it is seeing more growth in ethanol demand for export than for domestic usage. In the past five years domestic ethanol usage has increased 6 percent. At the same time, U.S. ethanol exports have grown by 122 percent and now account for 7 percent of all ethanol demand. If not for these exports the ethanol industry would be facing even more financial stress than it currently is.
We are already seeing some mixed opinions on both old and new crop soybean balance sheets. A few analysts believe old crop soybean carryout will grow and eventually reach nearly 600 million bu. These same individuals believe new crop soybean reserves will tighten to 400 million bu given the projected short crop in Argentina. While this is possible, there are many factors that will ultimately determine both of these figures as the marketing year progresses, especially new crop.
The current fund position in corn is raising some interest in the market. Beginning at the end December funds started to build a long corn position which caused the buying of just over 400,000 corn contracts and a rally in the complex of 42 cents according to research from F.C. Stone. In the just past two weeks funds have liquidated roughly 50,000 of these long contracts but the market has receded 20 cents. Given the funds are still long an estimated 190,000 contracts of corn, this shows just how much pressure we could actually see in the complex.
Chinese officials have increased their soybean import forecast for the 2018/19 marketing year. It is now believed the country will import 100 million metric tons of soybeans this year, up from last year’s 97 million metric tons. This total is considerably larger than the 93.5 million metric tons that were imported in the 2016/17 marketing year. The same officials believe China’s domestic soybean production will remain unchanged this year at 58.5 million metric tons.
While this would appear to be good news for the U.S. export market, that may not be the case. Brazilian officials have increased their soybean production estimate, and in turn, their export volume as well. It is now believed Brazil will export 75 million metric tons of soybeans this year, up from the previous estimate of 71 million metric tons, and well above last year’s 68 million metric tons. Not only could these soybean satisfy the increase in China’s soybean needs, but cover losses in the Argentine crop as well.
Its appears as though the La Nina weather system is not going to fade as much as earlier thought. Initial forecasts indicated this system would fade out and be gone by spring. Recent models shows the system is lingering and will remain a weather factor for the next few weeks. Historically, a La Nina has brought dry conditions to the Southern United States, wet weather to the Eastern Corn Belt, and normal conditions to the Western Belt.
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.
Please Enter Your Facebook App ID. Required for FB Comments. Click here for FB Comments Settings page