Market Analysis 

 

Even though just updated, we continue to see a wide range of estimates on yields this year. There are thoughts we could see a corn yield as high as 170 bushels per acre this year, or possibly as low as 160.

If usage would remain unchanged, the top end of these yields would give us a new crop carryout above 2 billion bushels. The low end would drop ending stocks closer to 1 billion. These varying opinions are a leading cause of the choppy trade we have seen in recent weeks.

We are seeing the same variance in soybean estimates. If the U.S. soybean yield would change as little as 2 bushels, it would have a considerable impact on ending stocks. What is really causing uncertainty in the soy complex is the size of last year’s soybean crop. Many analysts believe that crop was overestimated by close to 100 million bushels.

The main reason for these differences in yield estimates is the variability in this year’s crops. These range from producers claiming to have the best crops ever to those having the worst ever. What is so confusing about these reports is they can vary not just from state to state, but literally from field to field.

The question is when trade may have a better understanding of actual crop size. Many believe this will happen at harvest, but it could easily be a year from now before total crop size is fully known. One thing known by all traders is that this year’s corn, soybean and wheat inventories will all be larger than a year ago. This simple fact is keeping a cap on a market rally at this time.

Actual acreage is also being debated this year. This is especially the case on soybeans, where analysts have already cut plantings. These range from 1 million to almost 2 million acres, and are the result of the heavy, persistent rains in many regions of the Corn Belt.

While this may be true, there are also analysts who believe total acreage has been underestimated all year, and will be adjusted in September.

We are starting to see an increase in global soybean sales competition from Brazil. Brazilian farmers have now sold 77 percent of their old-crop soybeans and a large 17 percent of new crop. A rebound in soybean futures and still-favorable currency exchange rates has promoted selling interest. This demand for Brazilian soybeans is a primary reason for limited interest in new-crop soybeans from the United States.

We are starting to see doubt over future Chinese corn demand. Chinese officials peg this year’s demand at 171 million metric tons (mmts), down 9 mmts from a year ago. China is predicting record corn production this year of 232 mmts, which would more than satisfy demand and allow a build in reserves. At the same time, China may still need corn to blend with low-quality reserves, especially old crop.

The United States is starting to see more favorable feed demand numbers. After the most recent disease outbreak, U.S. hog numbers have rebounded 8.7 percent from a year ago.

This increase has more than made up for any feed demand loss from the bird flu outbreak. There are still worries over the cattle on feed numbers, as improved pasture conditions and growth in the breeding herd have slowed placements.

Much of the support we have seen in the soy complex recently has been from crush margins. The longevity of this support is being questioned, as the United States is the highest-priced source in the global market for soy meal.

Not only could this lead to sales being canceled but also the import of meal in the Southeast feed market. The recent increase in ethanol manufacturing and resulting dried distillers grains output is also likely to compete with soy meal in both the domestic and global markets.

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.