By KARL SETZER
Market Analysis 

Concerns are building over global soybean demand, primarily those sales that were expected to go to China. Chinese authorities claim ports are at capacity and interior storage facilities are also starting to reach the full mark.

At the same time inventory has filled in China, the country has seen a decline in crush margins. Not only is this limiting China’s soybean buying interest from the United States, but from all possible suppliers.

Trade is concerned with old-crop soybean demand, and new-crop; so far the United States only has 50 percent of the new-crop soybean sales on the books that it did a year ago.

One reason for this decline in demand is that South America is offering soybeans at a sharp discount to the United States. Another is that storage facilities in China, the world’s leading soybean buyer, have filled to capacity and there is little interest in extending coverage at any cost.

The outlook for U.S. corn exports is more promising. Not only is U.S. corn more affordable than most other sources, but we are starting to see more interest from buyers who have recently been passing our offerings.

The main one of these is China, who now claims it will import 4 million metric tons (mmts) of corn this year. Of this, half will be GMO, which is beneficial to the United States, as GMO concerns have limited China’s buying interest.

The latest cattle on feed report has given some hope to a struggling feed grain market. Both cattle on feed and placements were 100 percent of a year ago, and while depressed from historical numbers, the placement total ends a long streak of lower entries.

What is most interesting about the data is that heifer placements were the lowest since data started to be kept in 1996. This is a good indicator that feeders are holding the animals back for breeding purposes, and eventually the U.S. cattle herd will build.

It is believed feed demand on old-crop corn is overestimated, though, and will be reduced in future supply and demand reports. This is based on how much corn has been used so far this year and how many animals are on feed on a whole.

Given the projected usage from the USDA and the current rate of consumption, corn demand for feed will need to increase nearly 30 percent from a year ago for the remainder of the marketing year.

We are starting to hear more talk in the market regarding the upcoming May supply and demand report, as this contains the initial outlook at new-crop balance sheets. Right now, most of the interest is on corn.

Nearly all analysts are expecting to see a reduction in corn ending stocks from this marketing year to next, and that is without any type of a loss. The fact that old-crop corn carryout is likely underestimated at present is tempering some of this story’s bullish potential.

Another factor that could temper a reaction to any reduction to new-crop corn carryout in the United States is global stocks. There are several analysts who believe global corn stocks will also decrease this coming year, but not all are supportive of this opinion.

This is from the higher yield estimates being seen in South America as harvest progresses, and for the likelihood of increased double-cropping. Not only could this compensate for a smaller U.S. corn crop, but for potentially lower production in the Black Sea.

One of the most-watched global numbers in the May balance sheets may be Brazilian corn output. Brazilian officials have revised their corn crop estimate to a large 80 mmts. If accurate, this would raise Brazil’s corn export potential as well, and likely put it above last year’s 21 mmts.

At the present time the USDA is only forecasting a 75-mmt corn crop in Brazil. At the same time, the U.S. attaché in South America has reduced its forecast for next year’s soybean plantings in those countries. The primary reason for this is the elevated cost of inputs South American farmers are facing this coming season.

While farmers may seed fewer acres, it does not necessarily mean reduced yields or production. South American farmers are using better farming practices than in recent years, which are giving them higher yields per acre.

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.maxyield cooperative.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.