As expected, few changes took place to the domestic balance sheets in the April supply and demand report. Corn carryout was left unchanged from March, at 2.32 billion bushels. Soybean carryout increased 10 million bushels to a 445 million total, mainly from a decrease in residual usage.

 

Wheat ending stocks increased a minimal 30 million bushels to a comfortable 1.16 billion. Even though few alterations took place to U.S. ending stocks, there were some modifications to demand worth noting. One is that the 50 million-bushel increase to ethanol demand on corn was offset to an equal decrease to feed usage. What surprised trade is that exports were left unchanged, even though cumulative data point toward a higher figure.

 

On soybeans we had a larger seed demand figure due to expectations for elevated acres for this coming year, but this was more than offset by lower residual usage. This has some analysts thinking last year’s soybean crop has been underestimated.

 

More changes were made to the global ending stocks. The USDA increased world soybean carryout 3 million metric tons (mmts), to a large 111 mmts due to larger crops in South America and higher carryout in the United States. World corn reserves were bumped up 2.3 mmts to 223 mmts, and again was from larger crops in South America. The world wheat supply also grew by 2.3 mmts to a large 252.3-mmt total. The Brazilian firm CONAB also updated its production forecast last week, and increased soybean output for the fourth consecutive month. CONAB pegs the Brazilian soybean crop at 110.16 mmts. Soybean acres declined slightly from last month, but yield increased by 1.4 bushels per acre.

 

For corn the firm is projecting a 91.47-mmt crop. Not only did CONAB increase corn acres from a month ago, but bumped yield 1 bushel per acre, as well. We also saw updates to U.S. beef and pork last week. The USDA is projecting beef exports to expand by 6.9 percent in 2017, which is good news as beef production is forecast to grow 5 percent.

 

Pork exports are forecast to increase 8.4 percent this year, and will help offset a 4.6 percent increase in production. The best news for the livestock industry is that imports are forecast to decline by 9 percent on beef and 4.3 percent for pork.

 

One of the greatest unknowns in the market, and one that is a factor every year, is weather. There are an increasing number of forecasts that call for the development of an El Nino this year, which history shows is beneficial for yields.

 

Given the current trend yield estimate on corn and typical deviations in such years, the U.S. corn yield could fall between 175-185 bushels per acre if an El Nino forms. Using current demand, this would leave the United States with a new-crop corn carryout between 2.5 billion-3.5 billion bushels.

 

The same outlooks are being made for soybeans. A typical deviation from trend in an El Nino year would give the United States a soybean yield near 50 bushels per acre. Using our present soybean demand, this would put new-crop ending stocks from 550 million-650 million bushels. The difference between corn and soybeans is it would take much less of a production change to affect soybean stocks-to-use.

 

Contrary to several reports, corn planting and development in southern states is actually running ahead of average. In fact, it is quite likely the United States will have corn ready for harvest from this region by mid-summer. Given the lack of old-crop corn movement in the United States, this could easily cause logistics issues across that region. This may spill over into the global market, as South America will likely be at the height of its corn export program at the same time.

 

Talk is increasing in the market over the possibility of acres now shifting back to corn production from soybeans. This is a result of the ratio tightening between corn and soybean futures. While this can impact plantings, the real determining factor in any acreage shift at this stage of the year is weather. Even then, it would be at least another month before any sizable change would take place. Even though the United States has just started its planting season and South America is still harvesting, trade is already looking forward to next year’s production. The most talked-about factor is financing and credit.

 

There is a belief in the marketplace that financing will remain an issue next year and production will suffer, as a result. The obvious concern is that this will cause a shortfall in commodity production and tighter global stocks.

 

While this is possible, tighter credit does not necessarily mean reduced production. We have started to see farmers around the world use fewer inputs to produce crops, but higherquality ones. This is not just for seed, but on fertilizer and chemicals as well. In many cases this has actually raised production on fewer acres.

 

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.