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By Staff | Aug 1, 2018

The White House will soon be offering subsidies to combat low commodity values caused by recent trade tariffs. The package will reportedly contain $12 billion in subsidies for agriculture, including expanding our trade markets, buying products for food banks, and direct payments. The full mechanics of the program are unknown, but details are expected to be released in the near future. The administration did say this was a one-time package, and hopes to have trade issues settled soon.

The condition of the U.S. corn and soybean crops continues to weigh on the market. At the present time the U.S. corn crop is the highest rated in the past 27 years. The soybean crop is the best rated in the past 29 years. While it is nearly impossible to pin down a yield based on ratings, there is a significant pattern of better than trend yields when ratings are this high.

We are starting to see mixed opinions when it comes to this year’s crop ratings however. On a whole, the condition of the U.S. corn and soybean crop is very good, and rated higher than a year ago. At the same time, we are starting to hear of individual states reporting their crops are not that great, and quite variable. This is expected to show up in the August supply and demand report where individual state reports are factored into yield.

Analysts continue to take the U.S. corn crop rating and determine a final yield though, mainly on corn. Most now feel corn yield will top trend by 2 percent, which would be right at 180 bushels per acre. Predicting yield based on ratings has proven to be very difficult though, with no real correlation being made between the two. Still, the possibility of a larger corn crop is negating the strength we would normally be receiving from the elevated demand we are seeing.

We are already starting to see predictions made for fall storage needs. Given current production estimates and demand, most regions of the Corn Belt are expected to have adequate storage space this year. Storage is expected to be more adequate in the West, although the Eastern Belt should be able to hold most of its production as well. The only state expected to be tight on storage is Illinois, and that is by less than 100 million bu.

How much storage is available this fall depends on several factors though. Production is the obvious one of these. Another one is how fast and even the crops mature. If harvest is spread out this fall, it will prevent a large flush of new crop deliveries, and terminals and processors will be better able to handle the influx of inventory.

Another factor in how much room will be available this fall is how much old crop selling takes place between now and then. At the present time farmers have very little unpriced old crop inventory, likely less than 20 percenet of total production. It is not out of the question that this could be held right up to harvest as farmers want to see how much storage is needed before extending coverage. It is possible we could see old and new crop move at once because of this.

It appears as though the futures market is becoming immune to weather conditions this year. This is mainly from the fact that ratings were poor last year and we still ended up with record sized yields. Given this year’s even better ratings, buyers are showing even less interest in speculative buying at this time. This could make the addition of risk premium in the future’s market a thing of the past.

We are starting to see a change in China’s soybean buying habits. Chinese officials have announced the country will start taking measures to decrease soybean needs by 20 percent. One method being discussed is the use of alternative protein feeds such as distiller grains and possibly meals from plants such as canola. Even when China is buying soybeans we are seeing them go to sources other than the United States when possible.

The chances of having an El Nino weather system this year are increasing. Updated models show a 50 percent chance of having an El Nino system in place by fall. If correct, this will likely lead to another favorable end to the growing season. As a result, many analysts continue to call for above trend yield potential. An El Nino also tends to bring favorable growing conditions to South America, which would be a benefit for next year’s crops.

Although it is quite early, we are already seeing some analysts make predictions for next year’s planted acres in the United States. So far, analysts are expecting to see an increase in corn acres and a decrease in soybean plantings. This is from the price ratio that currently favors corn production over soybeans. That said, in many cases corn still remain below breakeven while soybeans are just above, which will be just as much of an influence as anything.

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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