There are more concerns than the obvious when it comes to planting delays across the United States. If plantings are delayed this spring, it likely means we will see a delayed harvest next fall as well. This is most critical for the soybean complex, where there are already concerns of depleting reserves before the start of even a normal harvest. If a delayed harvest starts to become apparent, we could easily see an increase in price rationing on the old crop contracts.
There has been considerable debate in the market recently over global soybean displacement. U.S. soybean reserves are going to be at an absolute minimum at the end of this marketing year, while South America currently has a near burdensome soybean inventory. Given this displacement in stocks and price spreads, it would seem logic that buyers would opt for South American soybeans over those from the United States. Logistic issues are still impacting South America though, which is keeping buyers coming to the U.S. for needs, even with elevated values.
The entire world soy complex has been under pressure recently though, mainly from building demand concerns associated with China. The most talked about of these has been reduced feed demand in China following animal disease outbreaks. Another is building worries over China’s economy. The combination of these two factors has already cut Chinas soybean demand, and easily could even further.
Trade is becoming increasingly aware of the fact that even with reduced soybean export loadings for the remainder of the marketing year, there may not be enough actual inventory to satisfy demand. This is a concern in the domestic market, where soybean crushers could run out of raw soybeans by late summer. Livestock producers are concerned with this potential issue, as they may struggle to find protein-based feed ingredients.
There is a significant difference in market opinion developing in the corn pit. There is widespread belief that old crop corn values will be supported at current levels given the potential for increased demand in the near future. At the same time, projections for favorable yields and beneficial growing conditions will give us large new crop production. These thoughts could weigh significantly on new crop corn values, regardless of old crop dynamics.
Several climatologists are claiming the drought may be over for the Midwest. This is from the continuous rains that have been moving through these states over the past few months. This is most evident in the key corn and soybean producing state of Iowa, where topsoil is now reported as 92 percent adequate/surplus on moisture. The real concern remains subsoil moisture though, as this is what developing crops rely on later in the growing season.
Updated weather forecasts indicate the current conditions we are seeing in the Corn Belt may last longer than expected. The latest outlook models from government forecasters indicate cooler than normal temperatures will last across the Midwest through May, a complete reversal of what was predicted in April. This means any precipitation that is received will have a better chance of staying in the soil. Other regions of the United States are predicted to have mostly normal weather conditions through the end of May.
Ethanol manufacturing in the United States has rebounded in recent weeks. We are now running at an output level that should allow manufacturers to reach the yearly U.S.D.A. production estimate. The question is if this ethanol will actually be consumed however. Pressure is building for the U.S. government to lower the ethanol mandate again, which would in turn lower ethanol demand.
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.