Even though just updated, we continue to hear several private estimates for this year’s U.S. corn and soybean acreage. Given recent reductions to the size of the South American corn crop, more private analysts are projecting larger U.S. plantings This is from speculation that the corn market will appreciate more than soybeans in the near future. While this is possible, any uncommitted acres will have their crops determined as much by weather as any other factor.
Potential changes to planted acres in the United States this year is becoming more of a market topic as well. This is not just between corn and soybeans, but also from wheat. The delays we have seen to spring wheat planting could easily cause those acres to shift to an alternative crop, likely soybeans. When combined with a strong tendency to see a higher planted acreage number in June than the March intentions, this could easily give the United States a much larger soybean crop than currently projected.
The month of April is set to go down as one of the 20 coldest in history according to research from Advance Trading. It is interesting to note that seven of these years have happened since 1960. Further research shows that in six of these, corn yield was below trend. The question in the market is if genetics and farming practices have improved enough to limit yield losses.
Another factor that will impact this year’s production will be the farming economy. Credit is becoming harder to obtain, and for any farmer that may still need inputs for uncommitted acres, this will likely steer them towards the crop with the lowest cost of production. Historically, this would favor the production of soybeans over corn. If correct this will only increase already large soybean reserve forecasts.
Estimates are starting to be released for new crop carryout possibilities, with most interest on soybeans. Some analysts believe that new crop ending stocks will decline to 475 million bu if yield is no better than trend this year. Others claim that even with a trend yield carryout will be closer to 650 million bu as old crop demand is likely overstated. There is also a possibility of a better than trend yield, which some models show pushing new crop ending stocks on soybeans to 900 million bu.
The other side of these numbers is what we see for demand. Some economists are using higher usage numbers in soybean balance sheets projections which is being heavily questioned. The U.S.D.A. has been steadily decreasing old crop soybean exports but data shows they are still 245 million bu too high. Crush is also unlikely to increase as the industry is already approaching 100% of total capacity.
A big story in the market recently has been the tariffs China has placed on U.S. sorghum. These tariffs have been in the works for several months, and have nothing to do with recent trade developments. The concern is that the 179% tariff has elevated the cost of sorghum to a Chinese buyer to nearly $11.00 per bushel. By comparison a Chinese processor can purchase corn from government reserves for half that amount.
The concern is what the fallout of these tariffs will be for the domestic market. China imports 180 million bu of U.S. sorghum per year. Without this business, these bushels will like start to displace other grains in the domestic market, mainly corn for feed and ethanol manufacturing. While not a large amount, this would add bushels to an already ample corn reserve.
One of the greatest unknowns in the global market right now is South American soybean production. We continue to see reductions to the Argentine soybean crop, but increases to the Brazilian crop. We are now hearing that Paraguay will produce a record sized soybean crop this year. It is quite possible that when total South American production is figured, soy output will be greater than expected.
We are seeing a unique situation develop in Brazil. The first corn crop in Brazil is expected to be small this year due to market uncertainty and adverse weather to start the growing season. Thoughts are this will lead to elevated imports of corn to bridge the gap between the country’s harvests, and bump up demand for U.S. corn as it does. Any demand may be minimal though, as Brazil’s second corn crop is now thought to be larger than initial estimates.
Another reason we could see elevated corn output from Brazil is acreage. In the past few weeks we have started to see corn values in South America rally, mainly in Brazil. At the same time we have seen favorable growing conditions. The combination of these factors could easily lead to a larger than expected winter corn crop in that region of the world.
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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