By KARL SETZER Markets Analyst The only significant changes that took place to the domestic numbers in the monthly supply and demand report from the USDA were to corn. Corn carryout decreased a minimal 50 million bushels, leaving it at a comfortable 1.77 billion. Increased exports was the leading reason for this change. Soybean ending stocks were left unchanged at 385 million bushels, and wheat carryout made a slight 1 million-bushel decline, to 691 million. As with the domestic numbers, the only changes to global balance sheets of significance were in corn. World corn carryout is now projected at 185.3 million metric tons (mmts), a 4.3-mmt reduction from February. This was mainly from increases to global feed use and slight reductions to production. The global soybean supply was increased to 89.5 mmts, as was wheat at 197.7 mmts. The Brazilian firm CONAB, the country’s equivalent of the USDA, also released its updated production estimates. It puts corn production at 78.2 mmts and soybeans at 93.3 mmts. The corn number is nearly unchanged from the previous one, but the soybean figure is a 1.3-mmt reduction. These compare to the USDA numbers of 94.5 mmts on soybeans and 75 mmts on corn. Reports continue to come in from across the Corn Belt of farmers holding on to old-crop inventory, mainly corn. It is thought some farmers are still holding upwards of 50 percent of last year’s corn production. Their primary reason for this is hopes of a higher market to sell into – and while this may happen, any window of opportunity may be short-lived and favor new crop. Even if we see a development in the market that would support new-crop corn such as weather issues or acreage losses, old-crop carryout is still going to be nearly 2 billion bushels. Corn futures remain in a volatile situation because of this difference in fundamental outlooks. Some price models currently suggest a downside risk of 50 cents per bushel in old crop, as stocks remain higher than normal. At the same time, new-crop corn is carrying little risk premium, and any weather threat at all could propel futures higher. This is especially true if next year’s corn acres are toward the bottom end of some estimate ranges. Economists believe the lull we have recently seen in Chinese buying in the global market is only temporary. Many believe China will end up importing 74 mmts of soybeans this marketing year, and upwards of 65 mmts of corn by the end of summer. Much of this is going to be placed into government storage as a potential backstop against domestic production shortfalls. In order to make this possible in future years, China’s government is going to increase its storage capacity by 50 mmts. There remains a hesitation in the global market to overbook soybeans from Brazil at present. This is simply from logistics and how Brazil’s infrastructure still cannot handle the volume of soybeans the country wants to ship. The easiest way to remedy this situation is to build export facilities in northern Brazil, where the majority of the country’s soybeans are produced. We may also see more storage built in the northern part of the country, allowing exports to be spread out over a longer period of time. The United States has seen a decrease in demand for its dried distillers grains (DDGs) in the global market. In January DDG exports totaled 709,000 metric tons compared to 734,000 in December and 904,000 in January 2014. Analysts claim the decline in exports was the result of increased domestic usage. China remains a large buyer of U.S. DDGs, taking 170,000 metric tons in January, which was actually a 44,000-ton increase from December.
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. |
