By KARL SETZER
Market Analysis
Trade is expecting to see larger corn yields in the November supply and demand report. This is based on the two most previous years with large yields, 1994 and 2004.
In those years corn yield increased 1.8 bushels per acre and 4.6 bushels per acre from October, which would get the national average yield close to 180. If corn demand does not increase from the level predicted in the October balance sheets, this size of a yield would put carryout close to 2.4 billion bushels.
The change in soybean yield from October to November in these two years was minimal. In 1994 and 2004 the U.S. soybean yield only increased by 1/2 and 1 bushel per acre, respectively. While this is a minimal amount, it would still be enough to push the U.S. carryout on soybeans above 500 million bushels.
There is little doubt this size of a soybean carryout will pressure soybean values, especially with expectation of increased new-crop acres.
More questions are being asked over the harvested acres number the USDA is using in balance sheets. The agency is projecting harvested acres of 83.1 million on corn and 83.4 million on soybeans. These would be 99 percent of the planted acres on soybeans, but just 91.4 percent of the planted acres on corn.
Most analysts seem to think the soybean acreage is being overestimated at this time.
For the past few weeks we have heard talk in the market over acres shifting from corn to soybeans next year. This is from the fact soybeans are showing a more favorable return at present.
Some analysts are now starting to put numbers to this belief, with most expecting to see from 3 million-5 million more soybean acres. While this is possible, it is still too early to make a clear forecast on what new-crop acres will total.
While shifts in acreage this year are totally possible, they may be more localized. Regions of the interior market where corn demand is high will likely see ongoing heavy plantings of that crop.
This is the same region of the Corn Belt that also tends to raise better-yielding corn, making that crop a favorite over soybeans to begin with. Any shifting from one crop to the other will likely take place in the fringe areas of the Corn Belt.
There is another way to look at this whole scenario that could alter corn values. While corn does carry higher variable costs than soybeans, net revenue is closer than one might think. Variable costs on corn are almost twice that for soybeans, but returns are nearly equal, as a farmer has higher yields on corn than soybeans.
The difference between the two really comes from fixed costs, though, and these can favor soybeans.
Nearly all attention in the market recently has focused on the soy complex, mainly soy meal. We have seen a considerable amount of speculative buying in soy meal this week, as some traders are concerned over meal availability.
Research from the firm F.C. Stone indicates soybean crush for the remainder of the winter months will have to average 165 million bushels per month to replenish meal supplies. Given the fact the U.S. crush industry is already running at full capacity, this may be difficult to achieve.
This does not mean there will be a widespread soy meal shortage in the United States. Meal spreads are already at a point where the nation could see imports from South America into the eastern feed market.
While this may not be a large volume, it would help satisfy demand and allow domestic meal stocks to rebuild. It is also questionable as to how much other protein sources will be used in feed instead of soy meal, mainly distillers grains.
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.
