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Market focus shifting more to South American planting
Market Analysis
Trade is paying close attention to the corn planting pace in Argentina. Argentina’s corn planting is running close to three weeks behind normal due to rain delays early in the season.

There are also thoughts that at least some acres intended for corn production will now be used for soybeans instead. This could easily open the door for an increase in corn exports later in the marketing year.

European corn demand may be underestimated this year. Private analysts believe Europe’s corn demand will reach 11.5 million metric tons (mmt) because of last year’s drought.

The USDA is only predicting Europe’s corn imports to total 6.5 mmt, in its outlooks. Feed wheat is becoming harder to find in the world market, which is the primary reason for the higher of the two estimates.

Even with these higher usage estimates, corn values could erode. The USDA is expected to forecast a record crop for the United States in its February outlook, possibly as high as 14 billion bushels.

Corn production this high and current usage would leave the United States with almost three times the ending stocks it will have this year. If correct, this level of corn stocks would drop corn futures close to the $5 per-bushel range.

While we could easily see an increase in demand for U.S. corn in the global market, that grain is still seeing stiff competition from feed wheat. One country being watched the closest is China. Chinese officials project their feed wheat usage will total 30 mmt this year, while the USDA is only projecting China’s usage at 22 mmt.

The price spread between wheat and corn is starting to favor corn, though, which could reduce the amount of wheat being used.
One factor that could determine how much wheat is used as a feed grain in the global market is quality. Brazilian authorities claim the quality of that country’s wheat crop is poor this year, and it is quite possible a large portion of it will only make feed grade quality. If correct, this could easily generate increased competition for U.S. corn in the world market.

U.S. soybean demand may be underestimated, as well. Not only is this from exports, but from strong demand in the domestic market. Soybean crush is already 9 percent ahead of estimates and we are only two months into the marketing year.

This demand may not last, though, as both crush and exports will likely decline as the marketing year progresses and soybeans become harder to source.

Some analysts believe the bull story in the U.S. soybean market has run its course. The USDA increased its soybean carryout in the latest supply and demand report, indicating price rationing is, in fact, working.

Ending stocks are still projected at a very tight 140 million bushels, though, and even with a slight reduction in demand, it is still at an elevated rate. This carryout could be stretched even more if planting or harvest is delayed in the United States next year.
What is confusing trade even more is the potential for a record soybean crop in South America this year. South American soybean production is expected to be large enough to cover any shortfall the United States will have later in the marketing year.

It is even believed the United States could import soybeans prior to the next harvest, if needed to satisfy demand. While this is a possibility, logistic issues will prevent soybean imports from taking place at a sizable volume.

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.

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.
11/29/2012