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Unstable financial markets have driven money into commodities

 

By KARL SETZER
Market Analysis 

It is not out of the question that even with sporadic rallies, soybean futures could remain pressured for a long period of time. Not only are soybean reserves in the United States forecast to increase substantially this year, but they are in the global market as well.

At the present time we would need to see a significant weather threat around the world to prevent stocks from reaching burdensome levels.

There has been more talk in the market recently over the need for corn to rally to prevent acres from shifting to soybeans. This talk has some analysts thinking we will see a rally in corn futures, which is not out of the question.

One factor that could easily limit how much corn would rally from this situation is a declining soybean market. Corn also needs to remain competitive in the global market, which will limit upward potential.

Trade is already showing some concern over soil moisture levels in the U.S. Plains. Kansas topsoil is being reported at 34 percent short on moisture and Oklahoma is 67 percent short. At the present time this is more of a concern for the wheat crop, but before long, it could be an issue for corn as well.

While this is not a significant factor yet, when combined with the possibility of reduced corn acres next year, it could easily add risk premium to the corn complex.

Even though it is early in the marketing year, U.S. soybean sales are quickly building. At present the United States has 1 billion bushels of soybean sales on the books with the USDA only projecting 1.7 billion in sales for the entire marketing year.

Corn sales are not as strong, with just 443 million bushels of bookings and a yearly projection of 1.9 billion.

While these soybean bookings seem bullish, there is some concern with them. A large portion of these sales are to China, and were done at a value well above today’s market. There are legitimate concerns China will back out of these sales, or at least try to negotiate for a lower price.

There is also sound reasoning that soybean sales are heavily front-loaded and interest will drop considerably when the South American crop is ready for export.

Trade continues to dispute Chinese soybean import forecasts on a whole. Chinese officials claim the country will import 72 million metric tons (mmts) of soybeans this year. This would be just over the 69 mmts imported a year ago.

The USDA is using a figure of 74 mmts in its balance sheets, and even that number is being considered too low by many analysts. China has been stockpiling soybeans in recent years, though, and that could easily be the primary reason for the lower import forecast for this year.

Trade is starting to question the harvest progress numbers we are seeing this year, especially on soybeans. For the volume of soybeans that are moving into commercial storage and the progress that has been made, some analysts believe yields may not be as great as anticipated.

While this may be true, there is also a possibility that more soybeans are going into on-farm storage. If this second scenario is accurate, it may mean more corn will move into the commercial pipeline as harvest of that grain progresses.

Even though harvest is still taking place across the Corn Belt, producers are already being warned to monitor the condition of stored inventory, especially corn. This year’s crop appears to have a high variability of maturity and moisture levels that will make storing it a challenge.

This is similar to what took place over the past year, when damage was quick to appear. As a result, farmers will need to monitor storage bins closely and should move any questionable inventory as soon as possible.

One of the biggest supporting factors for commodities at the present time has little to do with traditional fundamentals. The financial markets have become unstable in recent weeks and some of this money has flowed into the commodities sector. This is one of the primary reasons we have seen commodities rally in spite of a considerable amount of bearish fundamental news.

 

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.

10/29/2014