Even though planting is just getting a good start, we are seeing updates made to projected storage needs for this fall.  

 

Given the larger stocks and questionable demand, it is now believed storage will be harder to find than first thought. Current models indicate we will need to see sub-trend yields in order to have enough room to store all bushels, both old crop and new. The greatest shortage is expected in the Western Corn Belt, as those states are currently holding the most old crop inventory.

 

How much storage we need depends just as much on old crop use as new crop production. At this time it appears as though corn demand may be 100 million bushels greater than what trade is projecting.

  

This is mostly from strong exports. Soybean demand is thought to be overestimated by roughly 60 million bushels, though. The United States is uncompetitive with South America on soybean sales for the next six months, which could further decrease soybean demand.

 

The corn market is working itself into a tight spot. At present there is practically no risk premium in corn futures, and funds are holding a rather large short position. Given these factors right in front of the planting and growing seasons, it would not take much to see a price recovery take place. This will likely make the market more sensitive to weather forecasts than in most years.

 

While weather will be a factor in price discovery in the commodity market, not many forecasts are indicating any extreme conditions at the present time. This is not uncommon in an El Nino-influenced growing season.

 

Some outlook models are calling for a warm June in the United States, followed by a cool July and then a return to warm temperatures in August. These would actually be favorable for corn production, especially with ample soil moisture.

 

Just because we are entering what could be an El Nino-influenced growing season does not mean large corn yields. In some El Nino years corn yield is no greater than 90 percent of trend, which would equate to 160 bushels per acre this year.

 

In turn, this would leave the U.S. with just 1.5 billion bushels of ending stocks with current demand, and likely cause price rationing. At the same time, corn yield could reach 111 percent of trend, and push new-crop ending stocks to 3.5 billion bushels.

 

Soybean yields tend to be a little more defined in El Nino years. Research shows these yields increase from 4-6 percent in such years. This could push soybean yield to 50 bushels per acre, and newcrop ending stocks close to 750 million bushels. While this is possible, we would need to see nearly perfect growing and development conditions for it to be a reality.

  

Commodity balance sheets remain a point of interest for the market. This is not just for the remainder of this year, but next year. One point of interest in this is the global soybean reserves, which are already at a 26 percent stocks-to-use ratio. Trade is becoming increasingly aware that even with a slight increase to Chinese demand this year, that number will likely grow next year.

 

This belief in soybean reserves is coming from two main sources. One is the shift in acres that is expected to take place in the United States this year. Another is that we could easily see a larger Brazil soybean crop next year.

  

Brazilian farmers are claiming they will produce roughly 9 million metric tons less corn in 2018 due to reduced plantings. It is quite likely these acres will shift to soybean production rather than sit idle.

 

Trade is showing concern over the amount of corn acres that remain unplanted in the United States. The concern is that this will impact yields and drop production below trend. While this is possible, history shows that weather during the growing season can impact final yield just as much as when the crop is planted.

 

History also shows the corn crop can be planted in a short amount of time, such as in 2013 when 58 percent was planted in two weeks.

 

It is quite likely recent weather will impact this year’s acreage. This is not necessarily from acres shifting from one crop to another, but that acres may simply go unplanted. This is more of a case in the fringe areas of the Corn Belt, mainly in the Upper Plains. This has some analysts already expecting to see acreage reductions in the June revisions to the March intentions report.

 

A greater concern with this spring’s weather could be insect control. The wet conditions across the United States could easily lead to increased insect populations. This is stemming from the mild winter that much of the nation experienced, which did little to reduce insect populations, according to field scouts.

 It is not out of the question that this could lead to elevated plant disease this year, as well.

 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 thiscommentary are solely those of Karl Setzer. Data used for this commentary obtained from various sources are believed to be accurate.