June 2017 is going to go down as one of the driest in history in some regions of the United States. Even with widespread rains to finish out the month, many locations saw 70 percent or less of their normal precipitation during June. History shows in many years with a dry June, corn production falls short of trend by an average of 7 percent.

 

Even though rains have been sparse across parts of the Corn Belt, the market has not reacted as much as some analysts thought it should. This is because rainfall reports do not account for irrigation.

While this will not recharge soil moisture, it will provide great benefits to a developing crop. Another factor is the increased planting of genetically modified crops, which have proven to be drought-resilient in many cases.

Now that the calendar has turned to July, more interest will be placed on potential corn yield. For the most part, analysts are predicting a national average of 168 bushels per acre. While this would be down considerably from a year ago, it would still be high enough to maintain a 2 billion-bushel carryout.

This is especially true with the 1 million more planted acres figure than what trade had been using in balance sheets. We are again seeing crop ratings used to try to determine final yield, which history has proven to be unreliable, especially in soybeans. In 2015 the U.S. soybean crop rating declined 7 points during the month of July, and then bounced from 61 to 64 percent good/excellent.

While everyone thought soybean yield would be poor, actual yield was recordsized at 48 bushels per acre. A record yield is not expected this year, but the crop is far from a total loss, too.

Trade is also interested in what we see for soybean ending stocks this year. It is thought soybean reserves will be well above those of a year ago at the end of the marketing year.

What is concerning about this is that global stocks are also much higher due to elevated production in both the United States and South America. The addition of acres this production season will only compound this problem as we move forward.

One unknown factor in soybean balance sheets at this time is crush. Soybean crush has been lowered in recent supply and demand reports, and some analysts feel this has been overdone. This is coming from shortfalls in other protein-based meals, mainly canola, which could elevate demand for U.S. soy meal.

The other side of this is how much meal demand may be offset with distillers grain (DDG) usage, as stocks of that product are rising.

While some corn uses are being questioned, one that is running strong is ethanol demand. The U.S. ethanol industry consumed 452.4 million bushels of corn in the month of May. This compares to 440.8 million bushels in April and the 425.7 million of usage in May 2016.

Along with the elevated corn usage came increased DDG production. DDG output in May totaled 1.9 million tons, compared to 1.85 million last May.

Trade is already looking forward to next year’s production in Brazil. Corn values in Brazil are under the cost of production. Not only is this adding reason to the hesitation to sell any more bushels now, but it could deter new-crop plantings.

The fact that not many new-crop corn inputs have been booked are verifying beliefs that next year’s corn plantings will likely be down.

Mexican officials have announced plans to increase ethanol usage in the country. One way is by increasing the blending rate to 10 percent, similar to the United States and Canada. Another is by pushing for expanded use of ethanol into some of Mexico’s larger cities.

 

These changes would take time to put in place, but could end up being a great benefit to the U.S. ethanol export market. For several months we have heard how China is promoting the use of domestic corn to cut stocks, mainly in the ethanol industry. This appears to be working, as China has now turned from an ethanol importer into an exporter.

While not a tremendous amount of ethanol is being exported at this time, the volume is expected to grow. It is still unknown what impact this will have on the U.S. ethanol industry, but there is little doubt it will generate at least some competition.

For the past several years the United States has seen continual growth in GMO grain and soybean production. This is expected to change this year, though, according to a recent farmer survey. Of the producers questioned, many claim they will reduce GMO corn acres in an effort to lower input costs.

Farmers polled claim they will seed 67 percent of their corn acres to GMO seed, down from 71 percent a year ago. Total GMO acres are also forecast to decline by 4 percent, for the same reason.

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.