The February supply and demand report contained few surprises. As expected, the USDA increased corn exports by 125 million bushels, which reduced carryout to a still large 2.35 billion bushels.
Soybean exports were reduced by 60 million bushels, causing ending stocks to rise to 530 million bushels. The USDA also decreased wheat exports, by 25 million bushels, but increased food usage by 5 million to put carryout at 1 billion.
Global numbers were also as expected on corn and soybeans, with reserves of 203.9 million metric tons (mmts) for corn and 98.1 mmts of soybeans falling within the range of estimates. World wheat reserves declined by 2 mmts to 266 mmts total.
More interest was placed on the global production numbers, mainly those in South America. The USDA left the Brazilian corn crop estimate unchanged at 95 mmts and increased the soy crop to 112 mmts. Argentine crops were reduced by 2 mmts on soybeans and 3 mmts on corn due to recent weather conditions. This still leaves the country with ample crops of 39 mmts corn and 54 mmts soybeans.
The Brazilian firm CONAB also released its updated production figures this week. CONAB is now projecting a soybean crop of 111.5 mmts in Brazil, slightly higher than the January estimate.
The firm made a large 4.3-mmt reduction to corn production from slow soybean planting and thoughts that the country will have fewer double-cropped acres. Brazilian corn production is now forecast at 88 mmts for this year, compared to 97.8 mmts a year ago.
Even though most competitive in the global market, U.S. corn continues to fight for export business. This is mainly from the large stocks of corn in South America that keep finding their way into the market. Compared to last year, corn reserves are 6.5 mmts greater in Argentina and 15.6 mmts higher in Brazil, according to sources in those countries. These stocks are also cushioning the potential corn production that may be lost this year.
Not only is South America competing with the United States on corn, but on soybeans. The most competition is for Chinese business. So far this year China has imported 21 percent fewer soybeans from the United States than a year ago, while Brazilian exports to the country are considerably higher. In recent months we have seen as much as five times the normal amount of soybeans trade between Brazil and China.
One commodity demand we have seen grow in China is for sorghum. China’s sorghum imports this marketing year are 40 percent greater than a year ago at this time. It has been widely believed the country is importing sorghum to blend with low-quality domestic corn to make it usable for feed.
It is also possible that China’s corn reserves are not as great as published, and the sorghum is displacing corn needs. There are questions over how long this demand may last, however. China has announced it will be investigating whether the United States is unfairly dumping cheap sorghum on the global market.
The greatest concern with this development is that there are 104 million bushels of sorghum sales on the books that are with China and an unknown buyer, who is also thought to be China, that could easily be canceled. Another fallout from any disruption of Chinese sorghum buying is more U.S. acres going to corn or soybeans if we see that demand erased.
Country movement of farm-stored corn and soybeans has been much lighter than anticipated across the interior market. There are several reasons for this, but one may be an overall change in the way commodities are marketed.
Historically farmers have been heavy sellers in January, due to it being a new tax year. More and more, farmers do not have a traditional calendar year for taxes, though, which is eliminating this flush of deliveries.
This lighter than expected country movement is causing some concerns for buyers. Many had anticipated these deliveries, so they held up on pushing for needs in late 2017. Several buyers and end users went as far as taking early delivery of deferred contracts.
Now that selling has not taken place, there are some who have little if any coverage in place. As a result, we are starting to see more immediate ship incentives being offered.
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.