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Harvest begins, but still too little date to satisfy curiosity

 

Harvest is starting to advance across the Corn Belt. Progress is slow, though, and not enough data have been collected to garner accurate production figures.

As harvest progresses, trade is closely monitoring basis values to see if these weaken as expected. It is thought that we will see a large amount of new-crop bushels flow directly into the supply line given the large amount of old-crop stocks that have been held over.

There is a development that is taking place that could prevent this from happening, however. More farmers than normal are claiming they will use temporary storage to allow the holding of both old and new crop. Others claim even if they do deliver bushels to commercial terminals, they may opt to pay storage rather than making sales.

This could force buyers to push for coverage even with a near-burdensome fall supply of stocks.

Trade is starting to look forward to the quarterly stocks report that will be released at the end of the month. It appears as though corn exports have topped trade expectations for the year by 15 million bushels. Corn use for ethanol also appears to have been 60 million bushels greater than trade had initially thought. The report at the end of the month will show us if these numbers are correct.

The same is taking place in the soy complex. Soybean loadings fell short of USDA expectations by a reported 105 million bushels. Crush is also thought to have fallen short of expectations, but by a minimal amount.

It is thought that the combination of these factors will give us an adequate stocks number as of Sept. 1, and help temper any production loss we may have this year.

Soybean crush is a number that trade is starting to question on a whole. The USDA projected a crush total of 1.95 billion bushels, which is a higher number than capacity would allow.

The USDA is using a similar number when it comes to new crop soybean crush as well, and generating the same doubt. It is likely we will see gradual reductions to this figure for the remainder of the marketing year, same as what took place with old crop.

We are starting to see a difference in how corn is priced in the domestic market. For the past several years the U.S. corn market has separated itself from the global market as the ethanol consumption of corn increased. Now that ethanol production has plateaued, we are starting to see the global market again become a factor in price discovery.

When it comes to the global corn market, the United States is seeing its share of business shrink. This is from the growth in export business out of South America. South American countries export one-third more corn than the United States in today’s market. This is taking place even though U.S. corn production is 2.5 times that of Brazil and Argentina combined.

More estimates are being released for what we may see on new-crop production in the United States. There are early indications we could see elevated corn acres this coming year, as farmers who normally plant hard red wheat face negative returns at the same time.

It is not out of the question that any increase to corn acres and a trend yield, and we could see ending stocks approach 3 billion bushels by the end of the 2019 marketing year.

The same scenarios are being played out in the U.S. soy complex. If yield is as high as some forecasters indicate this year and is no less than trend next year, stocks will build.

Some models are putting soybean carryout above 500 million bushels at the end of 2018 and close to 600 million at the end of 2019. Even if soybean carryout holds steady at today’s level, it is unlikely we will see much appreciation in complex values.

While both of these are possibilities, there are several factors that will impact balance sheets on both corn and soybeans. The obvious one is acres. Any shift in acreage can change production as much if not more than yields.

Given tighter credit and elevated input costs, producers may opt to plant the crops with the least cost next year, rather than one with a higher return potential.

We are hearing several experts claim the new-crop soybean ending stock estimate of 475 million bushels is too high. While this may be the case, it is not a given.

It is interesting to note that the initial 2016/17 soybean carryout was projected at 305 million bushels. As of today, that number has grown to 345 million. What is more interesting is that since that number was released on May 10, 2016, November 2017 soybean futures are trading at almost the same value.

 

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.

9/28/2017