The conditions 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 seeing more yield estimates being released, particularly on corn. Many analysts claim the U.S. corn yield potential has risen to 183 bushels per acre. Ratings are one factor in this higher yield, but so is weather and crop progress. Analysts are hesitant to adjust soybean yield at this time, but many feel it could easily reach 50 bushels per acre, and likely more.
When it comes to crop conditions, some analysts feel current ratings are not a true indicator of yield potential. This is because the conditions of the crops in fringe areas is reportedly much worse than a year ago. Last year this is where a large part of our increased production came from. While that is true, other parts of the interior market are much better than last year, mainly in Illinois.
The wide range of yields is generating mixed ideas on carryout as well. Corn Yield estimates range from a low of 164 bushels per acre to a high of 184 bushels per acre. While wide, each end of this range is possible given current market fundamentals. The concern is that even at the top end, it may do little other than hold ending stocks unchanged given projected demand.
This same scenario is taking place in soybeans, although the yield range is much tighter. If soybean yield varies by more than 2 bushels per acre it could have a considerable impact on ending stocks. A reduction could drop us into a rationing situation while an increase will put us right back at a burdensome level. The difference is that for soybeans we could easily see a larger old crop ending stocks total that would cushion new crop production losses.
We are seeing some concern in the market in regards to crop maturity. The U.S. corn crop is about 10 days ahead of the normal maturity rate. The concern with this is what it will mean for crop quality. There are many who are claiming the crop will have lower quality from this fast maturity, especially on test weight. Soybean maturity is also ahead of normal on pod setting. If correct, this could not only impact crop sizes, but values as well. This is especially the case in the global market. An importer will be hesitant to book U.S. corn and soybeans if quality is questionable.
Export sales are receiving more attention this year than in most due to trade disputes between the United States and many of our traditional buyers. Even with all of this debate taking place, old crop corn exports are in-line with historical volumes. This is mainly because most buyers have old crop needs covered, and a shrinking global inventory may keep buyers coming to the U.S. for needs, even with tariffs. The most attention is on Mexico who accounts for 25% of all U.S. corn exports.
Trade is also monitoring soybean sales more closely than usual. At the present time cumulative soybean sales trail a year ago by 90 million bu. Given the pace we are holding on soybean sales we should easily be able to cover this deficit though. This is from non-traditional buyers coming to the United States to avoid high priced South American offerings.
One of the greatest factors in current trade remains the global market. When it comes to this topic, nearly all attention has been on China. While a significant trade partner, there are other buyers who we are currently in conflict with that take sizable quantities of our commodities as well, mainly Mexico, Canada, and the European Union. Any loss of business with these partners will be just as critical for U.S. markets as China is.
We are already seeing a large amount of interest placed on the upcoming harvest season. This is not just for production, but for when harvest will start. There are several crop scouts who claim southern corn will be ready for harvest by mid-September. Buyers have not shown much interest in extending old crop coverage because of this early harvest potential.
Trade is starting to make estimates for how much old crop inventory is still being held by U.S. farmers, especially soybeans. It is believed that U.S. farmers still have control of 10 percent of last year’s crop, or roughly 400 million bu. If correct, this means farmers are in possession of 80 percent of our old crop reserves. As a result, end users may have to push bids considerably to secure needs.
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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