By KARL SETZER
Market Analysis
The number that surprised trade the most in the September stocks report came from the soy complex, where old-crop stocks were cut to a modern low of 92 million bushels.
This is the least amount of soybeans in storage on Sept. 1 since 1973, when inventory totaled 60 million bushels. This figure would have been even lower if not for an increase to old-crop production of 69 million.
Corn and wheat received much less attention, as Sept. 1 stocks of 1.23 billion and 1.91 billion bushels, respectively, were not considered friendly.
There are thoughts in the market the USDA is overestimating this year’s corn acres, which is possible. The question is how much acres may be overestimated, and what impact it may have on corn futures.
Even a 2 million-acre loss from current estimates could easily be offset with yield adjustments. Trade is still looking for new-crop corn carryout to climb above 2 billion bushels, which is weighing on the complex.
The same debate is taking place in the soy complex. Analysts believe soybean acres may be overestimated by 1 million at present. The difference between soybeans and corn in this situation is that even if soybean yield is unchanged, we will still see carryout above 400 million bushels, given current demand. This may make it harder for soybeans to rally at the present time than corn.
We are starting to see more interest placed on South American weather as those countries begin their planting season. Heavy rains have fallen in southern Brazil, replenishing soil moisture where needed. Conditions in the northern region of the country are drier, but this is seen as beneficial at the present time as planting gets under way.
These favorable conditions have caused some analysts to already increase their crop estimates for South America’s soybean production.
Not only has global weather affected corn and soybean production recently, but also wheat development. Drought is being reported in Australia, causing some field scouts to project a crop that is 1.5 million metric tons smaller than what the USDA estimates.
We are also seeing dry conditions in the Black Sea region that could easily impact plantings. Given the current domestic wheat reserves in the United States this demand will be needed to support cash values.
There is a general belief that input costs will need to recede across the United States to compensate for reduced commodity values. While this does tend to happen, how much of a decline we see to inputs is questionable.
This is especially the case for fertilizer, where global demand is keeping a floor under values. The most demand is from South America, where fertilizer imports were a record in 2014 – and are expected to be again in 2015. How many acres of corn are planted this coming year will also impact fertilizer values, mainly nitrogen.
While much of the comparison between this year and those in recent history is on yields, price actions should be more noteworthy. In 1994 corn values decreased into October and then traded sideways into December. In 2004 corn values slid all the way into the December delivery period.
Basis values have become volatile across the interior market in recent weeks. This is not surprising as we see old and new crops’ bids come together, especially in the soy market. Regions that have received adequate new-crop grain have weakened basis, while others are still seeing sizable pushes for immediate ship deliveries.
Many producers seem willing to store as much of this year’s crop as possible, which would cause an early rebound to basis following harvest even where basis has softened.
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.
