Domestic corn and soybean processors are starting to evaluate their needs ahead of the upcoming harvest. Some of these buyers have needs covered from now through the end of the old-crop marketing year, and are either reducing or pulling their bids as a result.

This is usually most noticeable in the soy complex, where processors have to shut down for annual maintenance ahead of the harvest season anyway. If crush margins remain depressed, these processors may let plants sit idle until cheaper new-crop soybeans become available.

Corn futures are starting to suffer from a factor termed “demand destruction.” This is a situation when the cost of using a product halts all sources of demand at once. Exports were the first use to fade, but this has quickly been followed by ethanol manufacturing and feed demand. It is becoming quite likely that annual corn demand will fall short of trade expectations.

We may see demand for U.S. corn drop even further, given the spread between that grain and feed wheat. In China, for example, 40 percent of feed demand can be offset with wheat. Several other Asian countries are showing interest in feed wheat as well, mainly from price, but also from availability. Some buyers are concerned with recent flooding in the United States, and how it may impact potential exports.

It is also quite likely we could see this displacement happen in the domestic market, especially in the Southeast. At the present time feed wheat is being offered for $1.30 less than corn in this region, compared to 60 cents just two weeks ago. This shifting has the possibility of displacing a large amount of corn demand.

Another reason for the weakness in commodities at this time is seasonal. The crops are planted and without a weather threat, we tend to see futures erode.
This is especially true in corn, where in four of the past five years, December futures have declined from June through the remainder of the calendar year. The fact that buyers booked most of their grain earlier in the marketing year is also weighing on corn and soybeans at this time.

The drought that has been impacting Texas this year has been one of the most costly in the state’s history. Financial losses from the drought currently total $1.5 billion and keep growing. Of this loss, $1.2 billion is in the livestock industry, as ranchers are forced to liquidate cattle early from a lack of food and water.

Losses may be reduced later in the year for crop farmers though, as many will still have time to seed cotton and generate at least a little revenue.
Trade continues to debate just how many acres have been planted in the U.S. this year. Most projections are for 90 million acres of corn plantings, down from the 92.2 million estimated in March by the USDA. Several analysts feel corn acres will be even lower because of delayed plantings, but some feel the number could actually be unchanged, as they feel the initial estimate was too low.

Soybean acres are being estimated at 76.5 million by nearly all market analysts. The analytical firm Oil World does not believe global soybean production will be great enough to satisfy demand this year. In the group’s most recent forecast it pegged world soybean production at 265.5 million metric tons.
At the same time, the firm predicts soybean usage of 270 million tons. Oil World claims this shortfall in soybean production will need to be satisfied with increased output from South America.

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 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.