By KARL SETZER
Market Analysis 

As expected, few changes took place to the corn numbers in the June supply and demand report. Old-crop carryout was estimated at 1.87 billion bushels and new-crop, 1.77 billion – both close to the May numbers.

The real negativity for corn came from the global side, with old-crop reserves projected at 197 million metric tons (mmts) and new-crop at 195.2 mmts. These were both larger than what was estimated in May.

More changes took place to soybean balance sheets. The USDA increased both crush and exports on old-crop soybeans, to cut ending stocks 20 million bushels to a 330 million total. This reduction carried over to new crop, and reduced those ending stocks to 475 million bushels from the 500 million in May. We did see a slight reduction to global soybeans reserves, but both remain adequate at 83.7 mmts on old crop and 93.2 mmts for new crop.

Even fewer changes took place on wheat balance sheets. Old-crop wheat stocks increased 3 million bushels to a 712 million total, and new-crop rose 21 million to 814 million bushels total.

Traders will now start to get positioned for the upcoming quarterly stocks and revised acreage reports. For stocks the most attention is on corn, where a record 4.6 billion bushels are thought to have been in storage on June 1. The previous record amount was in 2010, with 4.3 billion bushels of inventory.

The concern with this volume of corn inventory is without a significant weather rally in new crop, it may be hard to elevate old-crop values. Soybean reserves are expected to be up 300 million bushels from a year ago.

Acreage will be an important factor to both commodities in the June release. At present it appears as though trade is using yields of 166 bushels per acre on corn and 46 on soybeans in price discovery.

There are several analysts who feel these are too high and will be adjusted downward in the next supply and demand report. While this is possible, a shift in acres could have a greater impact on both crop size and ending stocks.

We continue to see a wide range of estimates and possibilities released surrounding corn yield and ending stocks. There are thoughts that given current growing conditions, we could see the U.S. corn yield reach 170 bushels per acre this year. Given today’s acreage totals and usage estimates, a new-crop carryout of 2 billion bushels could easily happen with this yield.

The slightest decline from the current 166.8-bushel estimate could see ending stocks drop closer to just 1 billion bushels, with the same usage and acres.

The same scenarios are being made in the soy complex. If the U.S. soybean yield would climb to just 47 bushels per acre and all other variables remain the same, new-crop carryout will approach the 600 million-bushel level. A drop in yield to 44 bushels would obviously reduce crop size and carryout, but still leave it at a comfortable 330 million bushels.

Even though it is early in the growing season, we are starting to see a definite division between crops in the Eastern and Western Corn Belts. So far crops in the Eastern Belt are being reported as better than those in the West.

The primary reason being given for this is the persistent rainfall that has gripped western production regions. Even with this divergence, crops on a whole are being reported as in relatively good shape, which is being reflected in the weekly condition reports.

Forecasters continue to predict a building El Nino for the remainder of the growing season. This forecast has greatly reduced the amount of risk premium in the market, as well as concerns over possible production shortfalls.

This is from historical tendencies for elevated yields in years that are El Nino-influenced. Since 1950, corn yield has been above trend 60 percent of the time and soybean yield has been above 80 percent of the time.

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.