By KARL SETZER
Market Analysis 

We are already hearing opinions voiced on next year’s potential acres across the United States. Depending upon what methodology a person uses, either corn or soybeans can both be favored crops. The real decision on what crop to plant next year will likely come down to what a producer has for a local market rather than a differential in futures.

One of the greatest factors in profitability of either corn or soybeans is cash rent. Cash rent has decreased in recent months, but not by a large amount and not in all regions. How far cash rent does decline will be determined by futures values and how they act over the next several weeks. Any rebound in corn and soybeans will likely limit any deterioration we see to cash rent.

In some regions of the interior market we are seeing harvest activity wind down. The question now is what farmers will do with their bushels, especially those for which they have to pay commercial storage. In many cases there is not a sufficient amount of carry in the market to warrant holding these bushels. The result of this situation may be elevated movement, even if just for a short period of time.

Prior to the start of this year’s harvest season it was thought storage shortages would only be a localized issue. We are now starting to hear of more elevators than expected going full on inventory, though, as yields have been higher than anticipated.

This is especially the case in Iowa and Minnesota, where soybean yields have been record-sized. More commercial elevators have been forced to hold soybeans, as a result, and are now struggling to find room for the advancing corn harvest.

Even with these large inventories, basis values have started to firm in some regions of the Corn Belt. Producers may be more willing to pay storage this year rather than sell at today’s cash values. This means even if an elevator is full it may not have inventory in a shippable position.

Basis is strongest in the Eastern Corn Belt, where yields were not as great as in the Western, and hardly any movement has taken place.

We continue to see debate take place over new-crop soybean carryout in the United States. The USDA pegs soybean ending stocks at 425 million bushels, but some private analysts have this much smaller.

A few analysts have stepped forward to claim new-crop soybean reserves will total no more than 300 million bushels. This is not so much from low production, but from elevated demand, mainly crush.

Even if soybean carryout does decline in the United States, it is questionable as to how much it will benefit the futures market. This is for a forecasted increase in South American soybean production, especially in Brazil. Brazilian officials believe this year’s crop will total 3.9 billion bushels, making it nearly equal to U.S. production. Buyers have much less urgency to cover needs, given this increase in global soybean inventory.

Ongoing dry conditions in South America and building concerns over this year’s production in those countries have supported soybeans. Global currency exchange rates have elevated input costs in Brazil 18 percent this year, while soybean values have only appreciated 15 percent.

This gives trade the indication either soybean plantings will be lower this year or we will not see heavy input use – both of which could impact crop size.

Analysts continue to use the El Nino weather system to try to determine South American soybean yields. This is difficult, as there are no defined trends between this weather event and final yield. For example, in 2011 there was an El Nino in place and soybean yield was just 92 percent of trend. In 2009 there was also an El Nino impacting crops, and soybean yield was 104 percent of trend.

Even at the low end of these ranges we could still see a large global soybean crop, given the size of production in the United States this year.

The dry soils being reported across the country are also starting to receive more market attention. No major droughts are being reported at this time, but very little excess moisture can be found either. The concern is that many long-range forecasts are calling for warm, dry winter conditions as well. If correct, this could easily start to cause the addition of risk premium to the futures market.

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.