Questions are being asked in regards to the soybean usage number the USDA predicted in its latest balance sheets. The USDA is projecting soybeans consumption of 4.33 billion bushels for the 2017/18 marketing year. In order to achieve this, every segment of soybean usage would need to be record-sized.

While we have seen elevated demand in recent years, this may be difficult to reach given the increased competition from South America in the global market.

Concerns are already increasing over the slow start to the U.S. export loading program. Weekly loadings are not running at a pace that would meet the yearly goal set by the USDA.

While it is early in the marketing year, this is already generating ideas that we will see reductions to demand in future supply and demand reports. While it is early to say this for sure, it will become increasingly hard to defend unless remedied soon.

The greatest concern is soybean trade with China. Even though China has been booking soybeans from the United States, it is also locking in needs from Brazil. The timing of this is concerning, as business is being done with Brazil for shipment during the U.S. harvest. This is typically a time when the U.S. dominates world soybean trade.

What is most worrisome is that China is paying a premium for Brazilian soybeans as buyers are worried over the quality of the U.S. crop.

New-crop soybean sales out of Brazil are also lighter than usual this year. So far Brazilian farmers have sold about half of the normal new-crop soybeans they usually do at this stage.

Farmers in Brazil are also holding a large 10 million-20 million metric tons (mmts) of old-crop soybeans. The combination of these means the United States will continue to see competition in the global market for soybean business.

This competition is unlikely to subside anytime soon. Even though Brazilian farmers claim they will plant few acres of soybeans this year, production is expected to remain unchanged or possibly increase. In many cases these soybeans are being offered at a discount to those from the United States.

Chinese officials have revised their long-range soybean import forecast, and believe demand will continue to grow. Chinese soybean imports totaled 93.5 mmts last year, and are expected to expand to 95 mmts this year.

By the year 2022 this total is forecast to reach 110 mmts. While this is a positive number, the question of where the soybeans originate from are key to how the market will react.

The quality of this year’s newly harvested crops is gaining market attention. The most interest is on soybeans, where a large amount of the inventory sitting in the Gulf is considered off-grade due to low quality. This is from the soybeans being harvested early and at higher moisture levels. These reports are limiting what the U.S. can ask for its soybeans in the global market.

We continue to see the use of nontraditional storage across the interior market. Farmers are using anything from old machine sheds to bags to store this year’s crops. In part this is the result of terminals being filled to capacity and not being able to take delivery of any new bushels. Some producers are also using alternative storage methods to avoid paying commercial fees.

We continue to see a divergence in what commodity farmers are willing to sell at present. While some analysts are telling clients to store soybeans, it appears as though that is the crop they are willing to liquidate.

Farmers can sell fewer soybean bushels to generate revenue than if they sold corn, which is leading to elevated selling interest on soybeans. Even then, producers are only selling just enough inventory to cover immediate cash flow needs.

It is early, but we are already seeing analysts release estimates on potential double-cropping in South America. Some analysts believe the slower start to the planting season than we had last year will reduce the number of double-cropped acres.

This is quite possible, but it does not necessarily mean production will be down. If farmers in South America direct all of their inputs on fewer acres, it could end up being a great benefit for yield.

There is a strong seasonal tendency in the corn market that is being closely monitored. In the past 10 years there has only been one time when the new-crop December contract did not trade higher than it did in mid-October. This was in 2013, when corn futures were already trading at record high levels.

The smallest increase was last year, at 26 cents, while in 2008 corn rallied $3.95 above the mid-October value.

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.