Market Analysis 

 

Few changes took place to the corn balance sheets in the May supply and demand report. Old-crop carryout increased a slight 24 million bushels, as elevated exports were more than offset with a decrease in food, industrial and seed use.

Surprisingly, the USDA did not adjust ethanol or feed demand on corn as many analysts expected. The initial new-crop carryout number on corn was released at 1.75 billion bushels and, while this is a decrease on the year, is still a plentiful amount.

Old-crop soybean carryover shrunk 20 million bushels in the May balance sheets from increases to crush and exports. This still leaves the United States with a large 350 million-bushel carryout. The real surprise in soybeans was the new-crop carryout number of 500 million bushels – this is one of the largest initial soybean carryout numbers in recent history.

For wheat, old-crop ending stocks increased a moderate 25 million bushels to a 709 million total as exports were cut and imports increased. New-crop wheat carryout was projected at a large 793 million bushels.

One of the most talked-about numbers in this report was the new-crop soybean carryout estimate of 500 million bushels. History shows that since 1986, there have been five years when the initial soybean carryout number was above 500 million. The greatest was in the 2006/07 crop year, at 650 million.

In each of these years, final soybean ending stocks were under the initial projection. While in some years this was substantial, in each year the carryout was still a comfortable number given the high starting point.

The sobering factor on new-crop carryout actually came from the global side. The USDA is projecting new-crop world soybean ending stocks of 96.22 million metric tons. This equates to roughly 3.5 billion bushels, or a number comparable to Brazil’s entire crop.

As with domestic numbers, this gives the market a large amount of room to adjust global balance sheets and still have plentiful reserves.

Even though these May numbers were just released, many analysts are already looking forward to future supply and demand reports. Several analysts believe soybean reserves will eventually dip to the 300 million-bushel level, if not lower. While this is a considerable decrease from the initial carryout, it is still a comfortable volume of soybeans.

We are seeing just as much uncertainty in the market surrounding corn balance sheets, for both old and new crop. The United States continues to hold a large amount of unshipped corn sales, and the further we get in the marketing year, the more likely they may be canceled or rolled to new crop.

Questionable feed demand and residual use are adding doubt to the corn numbers. Any build in old-crop ending stocks will reduce concerns over the possibility of a smaller new-crop production number.

We continue to see forecasts released calling for a building of El Nino-type conditions. This has several analysts rethinking their corn yield estimates, given historical trends.

The chances of having above-trend corn yields in El Nino years are 50 percent. In some of these years the difference was significant, most notably 2004, with a 10 percent above-trend yield.

These weather outlooks and yield estimates are having negative impacts on the U.S. cash market. Many U.S. farmers still holding old-crop inventory were hoping for a weather-related rally, and are now giving up on this possibility.

This has increased country movement and weighed on spot basis values. Buyers in the U.S. cash market now feel less pressured to extend new-crop bids either, as they are less worried over production shortfalls.

Trade is closely monitoring the planting pace on corn and is trying to better determine when harvest may begin. It is not out of the question that early-planted corn in Iowa could be ready to harvest in early September.

This possibility has greatly reduced the incentive to push for deliveries, especially since the state has 260 million bushels more old-crop corn on hand than a year ago, according to the latest stocks report. It is not out of the question that terminals could see a large flush of old-crop corn, directly followed by new-crop.

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.