As expected, changes to the domestic side of the monthly supply and demand report were minimal. Corn stocks increased 55 million bu from March to April, mainly from a 50 million bu decrease to feeding. This will leave corn carryout at a still comfortable 2.18 billion bu.
Only slight changes were made to soybean balance sheets as well. Soybean crush was increased by 10 million bu, but half of this was taken away by a reduction to expected seed demand. As a result, carryout decreased by a thin 5 million bu to a still high 550 million bu. Trade was most surprised that no changes were made to soybean exports despite a very slow export pace.
Wheat carryout increased 30 million bu in the monthly report as feeding is forecast to decrease. This will put wheat ending stocks at a large 1.06 billion bu.
In what was no surprise, the most changes took place to the global balance sheets. The U.S.D.A. decreased Argentine production and also the Brazilian corn crop size. The projected size of the Brazilian soybean crop increased, but is still less than what nearly all others are predicting by a sizable amount. As a result, world carryout estimates declined on corn, soybeans, and wheat.
Even though world soybean reserves are shrinking, the world soy market appears to be over-valued. According to data from the firm F.C. Stone, current soybean values are indicative of a 275 million bu carryout, not the current 550 million bu projection. The same is true for global stocks that will still be the second largest in history, and a large 12.5 million metric tons larger than just two year ago. This shows us that trade is still banking on large soybean exports in the second half of the marketing year.
Although U.S. corn is currently the lowest valued in the global market, the complex is likely gaining some acres in the domestic market according to some analysts. This is from the fact that corn is starting to post more favorable return possibilities than other grains, mainly wheat. This could easily cause a build in corn acres in U.S. fringe areas and help off-set some of the expected losses to acres in main production regions. As a result, it is not out of the question the United States could see higher plantings on both crops than currently expected.
We continue to receive mixed opinions on South American soybean production. Reductions continue to be made to the Argentine crop with some now below 40 million metric tons. At the same time we have had increases made to the Brazilian soybean crop, with production now estimated close to 120 million metric tons. As long as total production between these two countries remains above 159 million metric tons it should have little impact on global balance sheets.
More harvest data is being collected from South American countries. Over the past several weeks we have seen a decline in production estimates for these countries, but now that combines are in the fields, some of these opinions have changed. Late season rains appear to have been more beneficial to yields than expected, even in Argentina. These favorable weather conditions could also benefit double cropped fields, mainly the Brazilian Safrinha crop.
Chinese importers continue to make purchases of U.S. soybeans, even with the increased selling out of Brazil. There are a few different reasons for this buying, with many economists claiming it is a result of favorable crush margins in China that is favoring purchases from all sources.
Another is that China is concerned over future trade regulations with the United States and want to secure as much coverage now as possible. How long this demand will last depends heavily upon how long the United States remains price competitive with other soybean sources in the global market.
Trade is receiving mixed signals on future Chinese soybean demand. After considerable research, trade is finding that China may be able to avoid importing many U.S. soybeans if needed. China can instead import soy meal from South America, and when combined with the country’s elevated distiller grain production, it will cover much of China’s projected demand. Even if China would still need to import soybeans from the U.S. under this scenario, the volume may be much less than we are seeing today.
There remains debate over the current La Nina weather event and how long it may last. Some forecasters have stated the system will remain in place through early summer and be a factor for much of the U.S. planting season. Others disagree, and believe the system will break-down by the end of this month. The real question is if the system will be replaced by another El Nino event or if conditions will remain neutral for the U.S. growing season.
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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