Corn futures benefitted from the monthly supply and demand report from the USDA last week. Corn yield increased 1.1 bushels per acre from the December 2012 release, and now stand at a final 123.4 bushels per acre. This gave us a corn crop of 10.78 billion bushels.
While these numbers seem bearish, increased demand is forecast to drop corn carryout to just 602 million bushels, 45 million fewer than predicted in December.
Soybean futures found less support in the monthly data. Soybean yield increased to 39.6 bushels per acre and total crop size to 3.01 billion bushels, both larger than trade was expecting.
Soybean carryout increased 5 million bushels to 135 million, which was in line with trade expectations. This is still far from a bearish ending stocks number on soybeans, though, and continues to point toward the need for rationing.
Only minimal changes were made to U.S. wheat balance sheets. Production was left unchanged at 2.27 billion bushels, and ending stocks totaled 716 million bushels.
Quarterly stocks numbers were supportive for both corn and soybeans. Corn inventory on Dec. 1 was measured at 8.03 billion bushels, 1.6 billion fewer than in December 2011. This drop is being credited to the smaller crop size and strong feed demand.
Soybean inventory on Dec. 1 was an even 2 billion bushels, 404 million bushels fewer than a year prior, from strong exports and elevated crush. Wheat inventory was nearly equal to a year ago, at 1.7 billion bushels.
Today’s commodity market is in a tough spot. We are still at historically high values, and commodity values have started to struggle. It is quite possible the only way commodities can make another leg up is to first drop.
A correction from current values is likely the spark that will be needed to generate renewed commodity demand. Not only would this benefit domestic usage such as ethanol and feed, but exports to global buyers as well.
Early soybean harvest activity is gaining momentum in Brazil, and before long, the country will be in the export market. This will help remedy the potential issue of the United States not being able to satisfy the void between U.S. and South American harvests.
The U.S. soybean inventory is still expected to dwindle to the absolute lowest level in history this marketing year. The possibility of U.S. soybean imports remains legitimate, but large volumes are not likely.
Harvest is starting in Brazil, but planting is still taking place in Argentina. An estimated 85 percent of Argentina’s corn crop is now seeded. This is less than 2 percent behind to normal rate for this time of year.
Analysts are now starting to question how much yield has really been jeopardized from initial delays. The real unknown is how the late start will impact potential double-cropping.
While the United States may see a decline in soybean demand, soy oil demand may not decrease. The United States continues to see strong demand for its soy oil, with cumulative sales already at 75 percent of the total yearly projection.
If this pace continues, it will draw soy oil reserves to the tightest level in history. It is questionable as to whether the United States will be able to maintain this oil export pace, though, as tightening soybean reserves will limit crushing abilities.
More market attention is being placed on spring weather outlooks for the United States. One reason for this is the possibility of drought relief for much of the Midwest and Plains states. Another is the potential for heavy spring rains and planting delays.
This would be a critical development, as any delay in plantings would also mean a delay in harvest. Soybeans would be greatly affected by this, given the tight carryout forecast on that commodity.
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.