The initial corn crop rating is getting much attention. The rating of 79 percent good to excellent compares to the initial rating of 65 percent a year ago and the record of 81 percent in the year 1991.
The highest initial rating on corn in recent history was 77 percent good/excellent in 2012. Drought ended up devastating the U.S. crops that year though, proving that an initial crop rating is not a good indicator of production.
While final corn yield is very difficult to predict using conditions ratings, there is a trend worth noting. In ten of the past eighteen years the initial good/excellent rating on corn was 70 percent or better. In eight of these years the final corn yield number was higher than the one the U.S.D.A. used in the June balance sheets. The exception to this was in 2010 and 2012.
Now that the calendar has turned to June we tend to see a shift in market attitude. For one attention shifts from planting to crop development. This is also when we really start to see an increase in weather premium in the market. We also start to see more crop estimates released, and undoubtedly the debate that comes with them.
Even though the summer crops are still developing in South America, trade is looking forward to next year’s main production season. We have recently seen record soybean values in Brazil which will likely lead to higher production in the future. This could easily make any loss of production this year just a temporary situation. The fact remains that we need to see world soybean production expand to satisfy demand though, which will help limit market losses from larger production forecasts.
We are seeing revisions made to the volume of ethanol Brazil is expected to import this year. Brazil is starting its cane crush season, and it appears as though more sugar will be used in ethanol manufacturing. This is partially from the size of the sugar cane crop, but also from sugar values. As a result Brazilian officials have cut back their ethanol import forecasts by 29 percent. Historically, much of this ethanol would have come from the United States.
Another country we need to monitor when it comes to ethanol is China. China has been selling large volume of corn out of government reserves and is expected to continue doing so. Much of this corn will be used to manufacture ethanol, some of which will be available for export. This could easily reduce demand for U.S. fuel in the global market, especially in Asia.
Country movement of farm stored inventory is becoming more of a market focus point. Typically we see country movement of farm stored inventory increase once the majority of the spring planting is done. It is quite possible we will not see the normal volume of movement this year though, as farmers want to wait and see how their crops develop before extending sales. This could support basis longer than what was initially expected.
More attention is being placed on world corn reserves. For the second consecutive year world corn demand is forecast to be greater than production. In the U.S. alone we are expected to see a 500 million bu reduction to corn reserves given current balance sheet projections. Small grain reserves are expected to off-set some of this corn demand though, which is limiting market response.
The United States has seen a decrease in Chinese soybean demand in recent weeks. This has been credited to the tariff talk in the market, but that may not be totally responsible. Looking at China’s soybean imports from a year ago, the volume being traded between the two countries very similar. One difference is that China has been washing out of some of its old crop bookings, which is concerning.
Argentine soybean buying has raised some questions. The majority of the soybeans Argentina has bought are for new crop delivery. These soybeans are higher priced than any other soybeans in the global market though, and may just be used as a back-stop if needed. If this is the case, these sales could easily be washed out of later in the marketing year.
Fall logistics are already becoming a market topic. This is not so much for the interior market, but for the export market. We are already seeing buyers line up for our fall offerings on both corn and soybeans. The problem is that it is very hard for the United States to make large exports of both commodities at once given current port capacity.
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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