The USDA reduced U.S. corn carryout in the July supply and demand report. This was wholly from demand as production increased 190 million bu to 14.23 billion bu. We did see an increase in exports of 125 million bu which offset a portion of the elevated production. The world corn supply was also trimmed on new crop to 152 million metric tons from the 155 million metric ton estimate in June.
Soybean data was mixed. Ending stocks were trimmed to 465 million from last month’s 505 million bu on old crop. New crop increased from last month’s 385 million bu estimate to a large 580 million bu projection. This is from building concerns over future demand, mainly U.S. exports, which were cut 250 million bushels. World soybean reserves are forecast to jump a large 12 million metric tons to a 98.27 million metric ton total.
Seasonal trade patterns are starting to have more of an influence on today’s market. It is not uncommon to see corn futures to begin working lower at this time, especially if crops appear to be developing favorably. This is a pattern that tends to last through the end of November before values stabilize. At that time we tend to see corn futures recover their losses.
There is a similar pattern that takes place in the soy complex. Soybean futures tend to work lower from late June into early September. Over the past few years soybeans have then developed a pattern of recovering losses into November where they remain for the rest of the calendar year. One thing that impacts this trend is how early soybeans are harvested.
We are now at a stage where more attention is being placed on long-range weather models. This is because we are starting to receive outlooks for the month of August. In each of the past two years weather conditions in August has led to our record sized yields. As a result, now is when we may see an addition of risk premium.
Weather conditions this year are more mixed than in recent years. We have regions of the United States that are suffering from abnormal weather conditions this year, while others are near perfect. This is making it very difficult for analysts to predict a final yield and potential crop size. These conditions are also impacting country movement, as selling is much less in areas that are suffering from less than perfect growing conditions.
While some long-range weather models are uncertain, a few are predicting favorable growing conditions. These are elevating the chances of an El Nino forming this summer. Typically this system brings favorable growing conditions to the United States, and this year is expected to be no different. This forecast further increases the odds of better than trend yields this year, mainly on corn.
A factor that is starting to gain market attention is the unevenness of this year’s corn crop. This is a factor that could impact the crop all growing season. This also opens a wide window for pollination, which is expected to take place from now through the end of the month for much of the Corn Belt. This leaves more room than normal for yield loss to potentially take place.
Analysts are paying very close attention to country movement of farm stored inventory. Thoughts are if the crops look good we will start to see more movement take place. History shows that the better a crop looks, the sooner we see old crop move into the supply line. If production is questionable, we may not see much movement until we get much closer to harvest.
Export sales of soybeans to Argentina will likely be much less than trade initially projected. Argentine officials believe crushers will import from 4 to 6 million metric tons of soybeans this year. Of this, the United States may only receive 1 million metric ton of business, which is already half complete. Analysts are already predicting a sharp rebound in next year’s soybean production in Argentina, which will make any shortfall even less of a concern this year.
There has been talk in the market that Mexico will impose import tariffs on U.S. corn, but this seems economically unlikely. Mexico has already tried to import Brazilian corn and the economics proved costly. This year these imports would be even more costly as Brazil has less corn to export due to drought loss. It is believed that corn imports from Brazil would raise the cost of feeding livestock alone in Mexico 20 percent.
Trade is keeping a close eye on the U.S. export market. In recent weeks we have seen many traditional U.S. commodity buyers go to non-traditional sources for needs. The most talked about is South Korea, who has started to bypass U.S. corn. Some of this is the result of price differentials, but also from ongoing trade disputes and tariffs.
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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