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Will corn planting beat soy in 2013 despite lower demand?
 
We are starting to see a split in the market between corn and soybean fundamentals. Corn has very little fundamental support at this time, with the main being a lack of demand. The United States is struggling to export corn at this time, and in fact, we have seen more corn imports than exports in recent weeks.

Many corn producing countries are going to increase their crop sizes this year, which could pressure that grain even more. Fundamentals are much more favorable for soybeans at the present time. Simple supply and demand alone should give the soy complex all the support it needs in today’s market.

An ending stocks projection for 130 million bushels is far from what should be considered bearish and, in fact, with today’s demand base, any soybean carryout lower than 200 million bushels is still bullish. The only real fundamental pressure soybeans are facing is the possibility of an early harvest in South America.

The U.S. corn export program continues to struggle with a lack of global interest. For the past several weeks U.S. corn sales have been practically nonexistent. In fact, the United States has been importing more corn that it has been exporting due to price differentials and freight advantages.

At present, U.S. corn exports are running 44 percent behind a year ago, well below trade expectations. One of the reasons for the lack of demand on U.S. corn, other than price, is continued competition from wheat.

While feed wheat use has declined slightly in recent weeks, it is still well above historical levels. Even in the United States wheat feeding is expected to increase by 95 million bushels this year. There are also several foreign countries that would like to use corn in feed rations, but poor economics are forcing them to use cheaper wheat instead.

Soybean demand is not letting up at all, both in the export market and domestically. U.S. soybean export sales are running 37 percent ahead of trade estimates, compared to estimates for a 7 percent decrease on the year. The question in the market is if this demand is for real, or if soybean bookings are just becoming front-loaded. At this point either is a possibility.

Ukraine’s Minister of Agriculture has announced wheat exports out of the country will be suspended on Nov. 15. A poor wheat crop in Ukraine has left the country with just 5 million metric tons for export, of which 3.82 million had already been shipped by Oct. 22.
Demand for Ukraine corn has increased as a result, though, and it being substituted in many uses, mainly feed. The country is also seeing an increase in exports as Ukraine corn is being offered at a lower value than corn from the United States.

It has been several weeks since we have heard much talk on the double-cropping in soybeans that took place in the United States this year. It appears as though recent cold temperatures across the Midwest may have damaged this crop.

Several reports are coming in of the crop being hurt, with some fields being a total loss. Even in fields that were not killed off, the soybeans may not be fit for harvest, as premature death causes low-quality products, mainly oil.

Debate is already taking place over possible shifts in new-crop acres in the United States. At the present time corn futures indicate a $200 per-acre better return than soybeans.

Some economists believe this push needs to be even greater, though, in an attempt to encourage more corn-on-corn production to satisfy projected demand. Corn demand is not as great as projected though, which may limit the need for increased new-crop production.

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.
11/1/2012