By KARL SETZER
Market Analysis 

Some analysts have started to reduce their soybean carryout estimates. Most have reduced ending stocks by 100 million bushels and could cut them even more.

While this is positive news for the complex, we will need to see sizable reductions to carryover to be bullish. Until we see ending stocks approach the 250 million bushels mark, it may be hard to rally old-crop values more than we have.

Just the opposite is taking place in the corn complex, where analysts have started to increase carryout estimates. Poor export performance is the primary reason for this. Some now have corn carryout close to 2.5 billion bushels, which would not be a supportive number at all.

The early onset of this year’s winter-like conditions has further strained the U.S. logistics market. The river and lake systems are freezing over quicker than normal, and as a result barge freight has started to erode.

We are also seeing issues develop in the rail market, as not only are deliveries of raw products being slowed from winter conditions, but so is the shipping of finished products. This is more of an issue with the ethanol market, where almost all end products are moved by rail rather than truck.

One of the most heavily debated topics in the market right now is new-crop acres. Initially some analysts had predicted between 3 million-5 million corn acres would shift to soybean production this coming year.

Since then the number has been reduced, with some thinking it will be closer to 1 million-2 million acres. While still a sizable amount, this size of an acreage loss could be offset with an increase in production.

The commodity that may be affected the most by a shift in acres is soybeans. Deferred soybean values are already being pressured by the large carryout being forecast this year, and an increase in plantings next year will not alleviate this situation.

In fact, a 4 million-acre increase in soybean production would weigh heavily on soybean values, even with just a trend yield and slight decrease to old-crop carryout. The forecast for increased South American soybean production may compound this negativity for the soy complex.

Trade is showing some concern over the oil content in this year’s soybean supply. According to the latest crush data, the oil content in this year’s soybean crop is just 11.42 pounds per bushel. This is down 2 percent from a year ago.

While this is a minimal decline, any factor that buyers can use when determining price is an issue, especially when the United States is the highest-priced source of soybeans in the world market.

We are still at a point in the marketing year where farmers are trying to determine what to do with newly harvested corn and soybeans. We did see heavy movement until the market turned lower, and now it appears as though most are willing to store their unpriced bushels.

This comes at a point of the year when movement typically does decline. Many buyers across the interior market did not secure adequate inventory ahead of this, and are now again being forced to pay a basis premium for spot deliveries.

We are starting to see a turn in current ethanol market economics, and the outlook is less promising. Ethanol futures are now trading above gasoline futures, causing the worst blending margins in several years.

At the same time, Brazil is offering ethanol for export at a heavy discount to U.S. ethanol. This could easily cause a reduction in ethanol demand, and in turn greatly reduce processing profitability.

Chinese officials have announced intentions of increasing the country’s imports of non-GMO soybeans. Chinese regulations only allow for the import and use of non-GMO soybeans in food products, and in recent years these have been hard to source.

As a result, many processors have been buying GMO soybeans and illegally using them in their food products. The question is where China may source these soybeans from, as the global production of GMO soybeans has rapidly increased in recent years.

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.