Although it seems early, harvest in the Midwest is only weeks away. Early harvest has been taking place in the South for weeks, but now is when we will start to get a better indication of what total crop sizes may be. So far, yields have been very good, but thoughts are this will change as progress moves north. This is especially the case when harvest gets to points that were impacted by drought or flooding, and in some cases both.
It is not uncommon to see futures pressured once the harvest season commences. What is more likely to happen this year is pressure on basis, however. This is from the fact futures are already at historically low levels. Any basis weakness is expected to be short lived this year though, as producers across the Corn Belt remain unwilling to liquidate any bushels they do not need to at today’s values. Many have stated they would rather pay storage than sell in today’s market.
We are seeing a very wide range of estimates on corn yield this year, which is causing just as much uncertainty on carryout. Corn yield estimates range from a low of 164 bushels per acre to a high of 182 bushels per acre. At the low end of this range we would see ending stocks drop to 1 billion bu and rationing would likely develop. At the top end corn carryover would build though, and prices would be pressured. This is one reason why traders have walked away from the market until production can be better determined.
Trade is also keeping a close eye on world corn production figures. This is from a consistent tightening of production figures, and in turn, reduced ending stocks estimates. The greatest decline in production this year has been to the Brazilian Safrinha crop, but we have also seen decreases to Russian and Ukraine crops. Even if the United States does see its corn production increase, it will be hard to off-set these losses.
Old crop corn and soybean sales at the farm level remain very light. The main reason for this is lower cash bids, and how farmers are simply unwilling to sell any more than needed at these values. Another that is starting to be mentioned is that farmers want to see how crops develop before extending their sales. Thoughts are that in some cases old crop bushels may be needed to cover new crop sales, mainly in the upper Midwest.
Demand for U.S. soybeans is starting to be questioned. Old crop soybean sales may top estimates by 20 million bu, which is positive. At the same time soybean loadings are not keeping pace with sales, giving us a record unshipped total of 300 million bu. There are legitimate concerns that a large portion of these may be cancelled, especially any to China.
Much of the attention in the export market recently has been on soybeans, but just as much interest should be on corn. Unshipped old crop corn sales are currently a record 500 million bu. This is 170 million bu greater than a year ago. New crop corn sales are just as solid, with bookings running 60 more than a year ago at 178 million bu.
The U.S. corn market is receiving a benefit of being the only country with exportable quantities. Other corn exporters have experienced short crops this year, which has brought more buyers than usual to the U.S. for needs. This is mainly from the price others are demanding for their corn. Right now the United States is holding an $8.00 per metric ton discount to Brazilian corn and an $11.00 per ton discount to Ukraine.
Trade is starting to question Chinese soybean needs for this coming year. This year’s Chinese soybean imports are expected to total 97 million metric tons. Next year this volume is predicted to climb to 103 million metric tons. There is another opinion though, that China could ration current soybean reserves enough that only 90 million metric tons of imports would be needed. If correct, China may be able to avoid U.S. imports next year.
This spring’s transit dispute in Brazil is still causing issues for the country’s exports. Truckers in Brazil demanded high fees for transporting soybeans, which in turn has been passed back to exporters. These fees, which range from $3.00 to $4.50 per bushel, are then handed off to importers, resulting in higher soybean costs. As a result, some buyers have reconsidered their Brazilian purchases, and instead are focused on buying from the United States.
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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