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KARL SETZER

By Staff | Aug 17, 2018

The U.S.D.A. increased its corn yield estimate to a record 178.5 bushels per acre for the United States in the August supply and demand report, a 4.4 increase from July. This is expected to give the U.S. a corn crop of 14.59 billion bu this year. We did see an increase in corn demand of 225 million bu, but this was not enough to off-set. Given current demand estimates, this will put new crop ending stocks at 1.68 billion bu, which is 130 million bu more than predicted a month ago.

The big shock in the supply and demand report took place in the soy complex. The U.S. soybean yield is now forecast at 51.6 bushels per acre, a 3.1 bushel increase from July. Crop size on soybeans is now forecast at 4.6 billion bu. Very few changes took place to soybean usage, so much of the increased production went straight to ending stocks. This is expected to give the U.S. a new crop carryout of 785 million bu, a large 205 million bu more than predicted in July.

The global numbers on corn and soybeans were also altered in this release. The world corn stocks at the end of the new crop marketing year grew to 155.5 million metric tons from last month’s 152 million metric tons. The soybean reserve projection increased considerably from last month’s 98.27 million metric ton to this month’s 106 million metric tons. These have eased concerns over the need for price rationing in the global market.

Weather remains one of the most dominant factors in trade, especially at this time of the growing season. For the most part we have made it through the reproductive stage of development. There are some thoughts that now is when final yield is actually determined. August weather is the primary reason why we have had record crops in the past few years. If we do not have a repeat of these conditions this year we will start to see yield estimates decrease.

When it comes to crop progress and condition, there is one factor that is again gaining market attention. This is overnight temperatures. We have not seen excessive heat during overnight hours, which has proven to be a great benefit for corn yield potential. As a result, many analysts have bumped their corn yields higher in recent weeks.

Reports from across the Corn Belt indicate harvest will be early this year given the faster than usual crop maturity we are seeing. While this is welcomed by cash buyers who have been pushing bids to secure old crop bushels, there is some concern with the maturity pace we are seeing. Thoughts are the rapid progression of the corn crop this year will jeopardize quality, mainly test weight.

Much of the attention when it comes to production recently has been on corn, which is not uncommon. We are now at a point where more interest will be placed on soybeans. August is when pods are set and filled on much of the country’s soybean crop. Given current conditions and forecast models, it is unlikely we will see much of a reduction to soybean yield potential at this time.

Global soybean values are being heavily distorted by recent tariffs being placed on trade. These tariffs immediately increased the cost of U.S. soybeans to a Chinese buyer by 25 percent. Brazil was quick to elevate soybean values by 15 percent to take advantage of the higher cost associated with U.S. imports. While this is allowing Brazil to sell more soybeans to China at an elevated value, it pushed many non-traditional soybean buyers to the United States, and had little impact on our overall sales.

There is an intense debate taking place in the market over the ability of China to completely bypass the United States for soybean needs. Several analysts claim this is not possible given China’s soybean appetite. Others claim that between soybeans in reserve and the use of alternative protein feeds, it would be possible for China to avoid the United States for one year. China could also import meal from Argentina if needed, although this would pressure their domestic crush industry.

Even though we have seen tariffs placed on U.S. exports in recent weeks, we continue to see elevated demand for our offerings in the global market, especially on soybeans. Not only is new crop soybean demand elevated, but so is interest in the 2019/20 crop. Soybean sales for that marketing year have already topped 300 million bu, over twice the volume that was sold that far ahead a year ago at this time.

There is an interesting development that could easily take place with Brazil and have a positive impact on U.S. soybean exports. There are analysts who believe Brazil will continue to export soybeans to China, even if it cuts into their own reserves. It is then believed Brazil will book soybeans from the United States at a sharp discount to the global market to replenish reserves. It is not out of the question Brazil could buy U.S. soybeans and have them shipped directly to China, and have little impact on U.S. ending stocks at all.

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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