Trade is receiving mixed signals from the corn market. The USDA is currently estimating a corn carryout total of 757 million bushels and a stocks-to-use of 6.8 percent. This is the third-tightest stocks-to-use we have seen on corn at this point of the marketing year. At the same time world corn stocks are up on the year, indicating any possible corn shortage will likely be confined to the United Sates.
Trade is also concerned with possible corn planting delays and the impact they could have on final yields. Given historical data, though, there seems to be little correlation between an early planting and final yield.
In 2009 48 percent of the nation’s crop was planted by the second week of May, but final yield was just 3 bushels per acre above trend. In 1983, 45 percent of the crop was planted by that time and yield was 22 bushels under trend due to a summer drought. Trade is coming to the realization that a trend corn yield will not be needed to satisfy new-crop demand. While trend yield is pegged at 164 bushels per acre, a yield as low as 147 would still satisfy demand and leave carryout at a large 1.7 billion bushels, given today’s corn demand base.
A corn yield as low as 140 bushels per acre would still leave an adequate ending balance in today’s market. It appears as though this lower yield is what the market is using in price discovery projections.
The International Grains Council (IGC) has revised its 2013-14 corn and wheat production estimates. The IGC pegs world corn production this year at 939 million metric tons (mmts), a 10 percent increase from last year.
The group increased world corn carryout by 27 mmts to an above-average level. Increased acres and more favorable weather outlooks are behind these increases.
The IGC projects world wheat production at 680 mmts, a 4 percent increase from last year.
We are already starting to see debate increase over possible corn acres this production season, as well. In years with early, fast planting paces we tend to see more corn acres.
Last year was a prime example of this, where corn acres increased 1.3 million from the March intentions to the final number. In years with slow plantings we tend to see fewer corn acres, such as in 1995 when corn acres declined 3.8 million from the March estimate. Persistent rainfall has caused more concerns than just delayed plantings. Flooding is taking place along the Illinois and Mississippi rivers as the excess water flows south.
A result of this has been weaker basis values along many river terminals, as barge movement could easily be disrupted. This weaker basis has only compounded the weakness we have already seen in the interior market from declining processing margins. Long-range weather outlooks are starting to vary for the United States. Several forecasters claim we will see neutral El Nino/La Nina conditions this year, which will lead to a normal growing season. Others are not so sure, with some claiming we will see a repeat of last year’s hot, dry conditions.
This is a topic that will be debated for the next several weeks, and likely well into the growing season.
The United Sates may see an increase in feed grain demand in the next few months. Profitability has returned to the U.S. pork industry earlier than forecast and, as a result, we may see an increase in pork production.
The U.S. pork industry has been under pressure for the past several months as exports have declined. Commodity prices have dropped in the past several weeks, though, bringing profitability back to the industry.
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. |
