By KARL SETZER
Market Analysis
Even though numbers were just updated, many analysts continue to question projected corn demand from the USDA. One of the heaviest debated, and one with the most unknowns, is feed.
While the U.S. cattle herd has been building, it is doubtful we will see enough feed demand for the remainder of the year to meet the USDA’s projection. Concerns over the full impact of the recent bird flu outbreak are not believed to have shown up in feed demand yet, either.
Another demand that is suspect to many analysts is ethanol manufacturing. Given recently monthly grind numbers it appears as though corn is yielding 2.85 gallons of ethanol per bushel. This is a great improvement from recent years, the result of better manufacturing processes and improved corn genetics. Some economists believe this factor could be distorting yearly corn usage by close to 250 million bushels.
Soybean demand is also being questioned, as cumulative soybean bookings continue to run above USDA projections. At present the United States has more than 20 million bushels more soybeans sold than what the USDA predicted for the marketing year.
This means either we will see the USDA raise its estimate in the near future, or we will start to see cancellations in weekly sales reports. Given the fact the United States has a large amount of unshipped soybean sales on the books, we may see a hesitation to raise the target just yet.
It is quite possible any increase in soybean exports may simply be offset with a reduction to crush. So far this year soybean crush is running 2.6 percent ahead of last year. While this is positive, it is 1.4 percent behind the increase being used in balance sheets.
Given recent concerns over poultry and livestock disease outbreaks in the United States, reaching the projected crush total of 1.8 billion bushels for the year may be difficult.
U.S. exports of corn, soybeans and wheat have all suffered this year from price disadvantages, but there could be another factor as well: Quality. Soybeans out of the United States have a lower oil content this year, so traditional buyers of the raw product are now taking just oil instead.
The same is true on wheat, where low protein content is an export factor. While the quality of corn is not a factor yet, buyers know the U.S. crop could easily develop issues such as last year – and are unwilling to push bids at this time.
We continue to see comparisons between this marketing year and 2010. That year we witnessed corn values increase from April through mid-May. At that point corn values eroded nearly 60 cents before weather became a factor and provided support. There are analysts who believe this pattern will be repeated this year.
While this may in fact happen, there are also years such as 2000 when the corn crop had little stress placed upon it. That year the crop started out with a high condition rating and held it through the development season.
Futures slid that year all throughout the growing season due to the lack of a weather threat. Given forecasts for the continuation of the El Nino weather pattern, we could easily see this scenario unfold again.
There are few analysts who are friendly to new-crop soybeans at this time. This is from the simple fact soybean reserves are forecast to grow this year, both domestically and globally. While this is true, trade may be overlooking the fact these soybeans will be needed to satisfy demand.
One of the primary sources of demand is crushing for soy oil to compensate for reduced palm oil output. There are also thoughts that South America may use its production to build reserves, rather than for exports.
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.
