Market Analysis by Mark Setzer 

 

While we are seeing traditional market fundamentals impact the futures market, there are also effects from the global economy as well. Some investors are moving their money around and out of countries with questionable financial markets, especially Russia and Ukraine.

While some of this money has been placed in commodities and given them support, others have suffered. This is being most heavily reflected in livestock futures, where a correction from record highs was needed to begin with.

The price differential between the United States and other commodity exporting countries is being closely watched. At present the United States is one of the most favorable sources for corn, soybeans and wheat in the global market. The recent rally in futures has narrowed this gap, though, especially on wheat.

Availability is still favoring U.S. offerings, but this will slow or stop once the South American harvest begins.

A demand number that continues to be heavily debated is feed. The USDA continues to stand by its 4 percent increase in corn for feed use this year, even though the number of animals on feed is relatively unchanged from a year ago. Corn is a highly competitive feed ingredient and readily available, but without an increase in animals, it is difficult to justify a significant rise in usage.

Another corn use being debated is potential Chinese imports. The recent approval of selected GMO corn varieties has some analysts thinking Chinas corn imports will increase from current projections.

While this process may increase Chinese corn demand, so could simple economics. Right now China can import U.S. corn at a $2 per bushel discount to using their domestic reserves.

There are a variety of expectations being released for this year’s cash corn value. The USDA currently has the average value of cash corn at $3.40, 10 cents less than last year. Private analysts and economists believe this will be higher, with several at $4.25 per bushel. Their belief is that increasing demand and a need to push for acres will support corn futures.

Given current stocks-to-use projections on new-crop corn, the average cash value could climb even higher. Analysts claim a new-crop stocks-to-use projection of 12.5 percent equates to their projected cash value.

While this is true, we have seen futures climb as high as $4.87 with this range of carryout. How much involvement we see from the speculative crowd and farmer attitude towards movement will determine our actual corn value.

More thoughts are being placed on what we will see for fund balancing after the first of the year. For several weeks we have heard funds would be buyers in early January. Given the fact these funds bought in the month of December, there are now beliefs we could see selling develop early in January.

Predictions on what numbers will be released in the January supply and demand report will also have an influence on fund positioning.

We have seen elevated demand for U.S. distillers grains (DDGs) recently, but it is questionable as to how long this will last. DDG values have rallied $60 per ton off recent lows, and are now nearly equal to corn in many areas.

DDGs are still holding an advantage over protein meals, though, which is keeping their demand up. The unknown in the whole DDG market may be how long China keeps buying, and if the current ban on corn imports is further relaxed.

We are seeing more opinions voiced over the size of Brazil’s soybean crop, and wide variability in predictions. Private firms have the soybean crop estimated from 91 million-96 million metric tons (MMTs). These compare to the latest USDA estimate for a 94-MMT crop.

These variances could have a significant impact on global stocks and, obviously, market values.

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.