By KARL SETZER
Market Analysis
Trade remains concerned with the slow start we are seeing to the U.S. corn export program. At the present time the United States only has 25 percent of its yearly projected corn sales on the books. Given the fact there are few vessels lined up for U.S. corn, we may see light demand continue.
If this pace does not pick up, it is likely we will see corn export projections lowered in future supply and demand reports. There are several factors for the slow start to U.S. corn exports, but price is the main one. At present import buyers can secure corn from the Black Sea region at a $15 per-ton discount to U.S. offerings.
Another is overall demand, with buyers such as Europe expected to book less corn than usual. Some analysts believe this slow global demand will be offset with internal usage, but that also appears to be maxed out at the present time.
Not as much interest is being placed on our cumulative export sales as some analysts believe should be, mainly on soybeans. While soybean sales are high, it is possible they are being overestimated. Nearly 75 percent of soybean sales that are on the books are with China, and it is widely believed at least a portion of these will be canceled. The same belief is true with corn sales to Latin America, which could be arbitraged to South America for origination.
There is just as much debate taking place over interior demand, much as there was the last marketing year. Ethanol manufacturing has peaked, and could actually start to decrease if fuel demand and margins both erode at the same time.
We could see higher feed demand on corn, but this will be slow to build. Soybean crush has been high, but some of this has been from the rebuilding of inventory following last year’s low supply of meal.
As harvest progresses across the Corn Belt, we continue to see variability in yields. This is true for both corn and soybeans, and is being credited to the wet conditions during the growing season.
We are also seeing more variability in crop conditions, mainly test weight on corn. Areas of the Corn Belt that were hit by the mid-September frost and freeze are struggling to get test weights above 50 pounds per bushel on corn.
We are seeing much less of a premium paid for immediate-ship corn and soybeans across the Midwest, which is not that surprising. Harvest has advanced and more terminals are starting to see storage capacity filled.
This is far from the collapse that was predicted, though, and in fact, basis remains relatively firm considering yield reports. This has some analysts thinking yields may not be as great as predicted or reported.
Even with producers holding soybeans off the market, we could easily see futures values pressured. This is from the general belief U.S. soybean reserves could be at a burdensome level by next fall.
Compounding this are thoughts that global soybean inventory by next spring could be one of the greatest amounts in the past 20 years. This has some economists believing soybeans futures will drop below $9 per bushel, and possibly closer to $8.
In the not so distant future the United States will likely see more competition in the global corn market. Ukraine corn production this year is averaging 84 bushels per acre, according to data from F.C. Stone, but the country has the potential to produce much more.
In fact, Ukraine has much the same soil composite as the Corn Belt in the United States. This is similar to the situation in China, where corn yields can only increase from their current levels through improved farming practices.
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.
