By KARL SETZER
Market Analysis 

Balance sheet adjustments on corn were minimal in the April update. Feed use was the only change to demand, with a decrease of 50 million bushels, and was enough to push corn carryout to 1.827 billion.

The global number increased a large 3.2 million metric tons (mmts), reflecting the decreased demand for U.S. inventory and elevated yields in several other corn-producing countries.

The same lack of changes to balance sheets took place in the soy complex. U.S. ending stocks decreased a slim 15 million bushels, but still holds at a comfortable 370 million, which was right in line with trade estimates. Global soybean reserves also had few changes, holding at a large 89.6 mmts.

Changes to wheat ending stocks were a little more noticeable, as carryout was reduced by 7 million bushels. This was the result of wheat imports being cut by 15 million bushels. Reserves are still forecast at a robust 684 million. Global wheat carryover was steady at 197.5 mmts.

There is a definite possibility that analysts are underestimating new-crop corn demand, mainly exports. Countries in the Black Sea and European Union regions are forecasting lower corn production than a year ago.

There is a good chance this export business will come to the United States, depending upon South American production. South American countries are forecasting larger corn crops than a year ago, but exports from these locations may be limited because of economic issues.

Of the countries that may not increase corn production this year, most interest is on Ukraine. Last year Ukraine farmers produced 60 mmts of grain, a total that was forecast to increase to 80 mmts this year.

The turmoil between Ukraine and Russia has made this increase highly unlikely because of the impact it has had on Ukraine’s economy. Not only has Ukraine seen inflation of 30 percent, but its currency has devalued by 50 percent, making the financing and purchase of inputs difficult, to say the least.

While corn exports may remain strong into the new crop year, there are other sources of demand being questioned. One of these is ethanol, as production is forecast to decline as we approach the blend wall. Economists believe this issue will eventually reduce total ethanol demand by a large 1.5 billion gallons.

Another corn demand being questioned is feed usage, as cattle placements remain low and herds are not building.

Soybeans are not free from the possibility of increased export competition, either. Soybeans may find most of their competition from South America, mainly Argentina. Argentine farmers continue to hold a record volume of old-crop soybeans in storage as a hedge against economic issues in the country.

There are now concerns this holding of soybeans is doing more harm than good, as the Argentine government needs the tax income from soybean sales to generate enough revenue and remain operable.

We are starting to see more weather forecasts released for this year’s growing season. After what is expected to be a cool, damp start, weather conditions are expected to turn warm and dry.

These outlooks have already led to some analysts increasing their yield estimates. While these would be favorable for the production of corn and soybeans, there are several other factors that will also impact yields.

Not only is weather a factor for the U.S. crops at this time, but for those around the world. Global weather has been a negative factor for wheat recently, as conditions in both Russia and Australia have greatly improved in recent weeks.

Conditions are also favorable in South America for the completion of harvest and planting and development of second crops. These conditions have greatly reduced the amount of risk premium in today’s futures values.

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.