There is already building talk in the market surrounding next year’s U.S. grain production. There are private firms that have indicated the United States could produce a 14.6 billion-bushel corn crop under normal growing conditions next year. Given recent demand concerns, economists believe a corn crop this large would drop corn values substantially, possibly under the $4.50 mark.
New-crop soybean production is being projected at 3.45 billion bushels, a total much less bearish given the fact the United States needs to rebuild reserves of that commodity.
There are also discrepancies building over the volume of corn the United States will import this marketing year. The USDA currently projects U.S. corn imports at 75 million bushels. This compares to last year’s corn imports of 29 million. Private firms have the total much higher, though, with some at 125 million.
There is speculation in the futures market that demand for U.S. corn could soon increase. This is mainly from global corn basis values and how these have improved in recent weeks.
Analysts claim this is an indication of tightening global corn supplies, as buyers have shied away from the United States on corn for the past several months. If this is correct, the United States could soon become the primary source for corn in the world, same as it currently is for soybeans.
Increased export demand on corn may be negated by waning domestic usage. The main of these is ethanol manufacturing. The timeline for return of profitability to the U.S. ethanol industry is unclear; spokespeople for the industry claim the quickest way to increase profits would be to promote exports and raise blend rates.
There has long been talk of increasing the U.S. ethanol blend rate to 15 percent, but so far, only 8 stations in the entire country offer ethanol at this blend.
It may also be difficult to increase exports on ethanol, given a rebound in South American production, which is historically cheaper than fuel from the United States.
Adding confusion to today’s market is mixed yield reports. This is especially the case with soybeans, where several reports of soybeans being better than expected have come in during harvest.
The soybean yield increase in the October supply and demand report was a record-sized jump, and it is not out of the question we could see another one in November. Since 2000, soybean yield has increased four times in November, anywhere from 0.5-1.1 bushels.
There are also legitimate concerns over possible storm damage from Hurricane Sandy in the Eastern Corn Belt. An estimated 150 million bushels of soybeans remain unharvested in that region. This is 20 million more than the current soybean carryout estimate for the year. If even a small percentage of these are lost, it could have a significant impact on balance sheets.
Soybean demand is offsetting the unknown in production. Chinese soybean demand is showing no signs of slowing. In the month of September, China imported 182.4 million bushels of soybeans.
This was a large, 20 percent increase from the same month in 2011. For the year soybean imports are up 5.2 percent and are expected to hit a growth of 7 percent before the marketing year ends.
The Ukraine government has approached China for corn export quotas, and is showing interest in soybeans. These offerings are being tied to China’s loan-for-crops program. Ukraine has agreed to supply China with an annual supply of 3 million metric tons of corn in return for $3 billion in financing for inputs.
China has shown more interest in offering programs such as this in recent history, a move that could hurt other country’s export projections – mainly the United States’.
Karl Setzer is a commodity trading advisor/market analyst at Maxyield Cooperative. His commentary and market analysis is available daily on radio, in newsprint and on the Internet at www.maxyieldcooperative.com
The opinions and views in this commentary are solely those of Karl Setzer. Data used for this commentary obtained from various sources are 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.