Quarterly stocks data was a little negative for corn and soybeans as inventory of those commodities grew from a year ago. As of March 1st the United States had 8.89 billion bu of corn and 2.1 billion bu of soybeans in reserve. This was a 270 million bu yearly increase on corn and a 360 million bu increase in soybean stocks. The stocks number was more favorable for wheat where reserves were drawn down 170 million bu to a 1.49 billion bu total.
The big market mover in the report was the planting intentions. The U.S.D.A. believes farmers will plant 88 million corn, 89 million soybean, and 47.3 million acres of wheat this year. The corn and soybean acres are well below trade expectations and declines of 500,000 acres on soybeans and a large 1.97 million corn acres from a year ago. Wheat acres are forecast to increase by 800,000 this year to a 47.3 million total. The big surprise in acres was cotton where plantings are forecast to increase 1.24 million acres from a year ago.
We are starting to hear mixed opinions voiced over U.S. corn exports. Cumulative corn loadings are down 330 million bu from last year which many analysts are using as an indication our current ending stocks estimate is too low. At the same time, we have recently seen corn demand increase as U.S. corn is the most affordable in the global market. The real question in the corn complex is how many buyers still need coverage and how many are willing to wait for the new South American crop to be harvested.
We have seen economists claim the United States will soon see elevated demand for its corn and soybeans in the global market. These projections are based on values alone, as U.S. corn and soybeans are the lowest valued in the global market. While this is positive for sales, there are several other factors in predicting export potential, with quality being a primary one. Another is simple demand and how much coverage importers already have on the books from other sellers.
Even though U.S. offerings are the most affordable in the world market, it does not necessarily mean they are fairly valued. This is especially the case on soybeans at the present time. Research shows us that current soybean values are associated with a carryout nearly 150 million bu less than what is currently predicted. As a result buyers are speculating soybean values will recede and allow them to book needs at a lower cost.
One of the greatest sources of support for the U.S. corn market has been ethanol. In recent months this has shifted from production to exports. We are now seeing concerns in the industry as exports have slowed, mainly from China backing away from our offerings. While ethanol exports are still well above average, they have dropped by nearly 50% in recent months. Exports have been the leading source of revenue for the ethanol industry which is why this change is gaining attention.
The real concern when it comes to the ethanol industry is in distiller grain demand. We have recently seen a decrease in DDG exports of 4 percent from a year ago. At the same time, DDG production has increased by 2.6 percent. Unless we see other exports start to take place, this will be the equivalent of adding 120 million bu of corn to the U.S. balance sheets.
Now is the time of the year when we typically see an elevated amount of risk premium enter the market. We may see less of this than normal this year though due to the large crops that were produced last year with less than perfect weather. The larger carryout projections we have this year are also tempering the amount of risk premium traders feel is needed in the market. The fact that funds have already extended their long positions in corn and soybeans to record sizes will limit fresh buying as well.
There is another factor that is limiting commodity buying interest at this time. We are starting to receive more of a perpetual corn and soybean supply than in years past. As a result buyers know that within a few months of one crop being ready another one will be harvested in another region of the world. Buyers are much more comfortable waiting to pay a premium in the future than the spot market in this scenario.
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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