By KARL SETZER
Market Analysis 

We have started to see an increase in soybean demand in the global market, mainly from China. One of the main factors behind this increase is that the Brazilian real has gained 13 percent against the U.S. dollar in recent weeks, making U.S. soybeans more affordable.

There is also a strong tendency for demand to shift to the United States for soybeans at this point of the marketing year. This demand has generated ideas that the slow start to the marketing program on soybeans will quickly be made up.

Before long we will see a shift in the commodity market, from attention being focused on production to being more focused on demand. This is not uncommon and does in fact take place every year.

The shift this year is coming earlier than normal, though, as yields are high and we have seen less-than-desired demand for U.S. corn and soybeans in the global market. Some analysts are quick to claim sales are just not front-loaded as in the past, and will build as the marketing year progresses.

There is a difference of opinion forming over corn demand this marketing year. There are analysts who claim slow exports are not a worry, as domestic demand is much greater than exports. While this is true, the United States still exports nearly 15 percent of its corn production. Domestic usage can offset a portion of a decline in exports, but not all of it.

This year’s higher yields are giving even more of an advantage to buyers in the Western Corn Belt. Not as many buyers in the Eastern Corn Belt are enjoying this advantage, as yields are not as high as in the West. Storage was more ample in eastern regions at the start of harvest, which is further limiting movement at this time.

As a result, any basis weakness in the Eastern Corn Belt may be short-lived this harvest season.

Trade is already starting to make predictions for next year’s yield possibilities, and is using weather as an indicator. It is well known this year’s El Nino is one of the strongest in history, and could easily transition to a La Nina.

Two of the most recent years when this happened were in 1983 and 1998. In 1983 corn yield was just 83 percent of trend, but in 1998 it was 99 percent of trend, giving an unclear indication of what to expect this year.

We also need to remember that farming practices have greatly improved since those years, especially the ability to survive in adverse weather conditions.

Not only is the current El Nino being monitored in the United States, but in South America. Regions of Brazil are reporting drier-than-normal soil conditions, which are common in an El Nino-influenced year.

The question is what impact these conditions may have on soybean production, if any. According to data from the firm F.C. Stone, current conditions in Brazil are similar to those in 2010/11 when yields were record-sized.

Most analysts associate weather with soybean production in Brazil, but it is just as much of a factor for corn. In fact, in some ways weather can be more of an issue for corn production. Farmers in Brazil will wait to plant soybeans until conditions improve, which could easily delay corn planting as well. There are beliefs in the market that this will also impact Brazil’s second corn crop, possibly reducing acres.

As harvest advances, commercial storage is starting to fill across the interior market. This is concerning to trade, as harvest normally fills towards the end of the harvest season.

Higher-than-expected soybean yields and a large amount of old-crop inventory are the two primary reasons for the storage shortage. Many producers have also reportedly decided to deliver their first bushels to town, as they are concerned with tight space later in the harvest season.

Farmers across the Corn Belt are already being encouraged to monitor their farm-stored inventory. This is from the fact that in as little as 24 hours, damage can begin to take place in storage facilities.

The best way to prevent this from happening is to run aeration systems during periods of cool temperatures and low humidity levels. Coring bins as soon as possible is another good method of preventing quality loss from taking place.

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.