Few changes were made to the domestic corn figures in the December supply and demand report. No alterations were made to production, and demand was increased by 50 million bushels in the ethanol sector.

This decreased corn carryout to a still high 2.43 billion bushels. More changes took place to the global corn balance sheets, with stocks increasing to a comfortable 204.1 million metric tons (mmts).

Domestic soybean production was also left unchanged in the balance sheets revisions. The USDA decreased soybean exports 25 million bushels due to the sluggish pace we have seen on this year’s bookings. This was enough to elevate soybean carryout to 445 million bushels, from last month’s 425 million. As with corn, the global soybean reserve forecast also increased to a sizable 98.3 mmts.

The firm CONAB, which is the Brazilian version of the USDA, also updated its crop estimates this week. CONAB projects the country will produce 109.2 mmts of soybeans this year, 1.7 million more than its previous estimate.

This number is still below what most private sources are forecasting, as many are close to last year’s 114-mmt crop. The firm is now predicting a 92.2-mmt corn crop, compared to last year’s 97.8 mmts of output.

The majority of the interest in recent supply and demand reports has been on production. While this is a major factor in balance sheets, usage is just as much of a factor in both balance sheets and price discovery. For corn, the only segment of demand that can increase much is ethanol, and even then only a minimal amount.

Soybean usage would need to increase through exports, and at this time that seems difficult given elevated competition from South America.

Country movement of corn and soybeans has been light following the harvest season. We are now starting to see predictions on what will take place in the cash market following the first of the year.

Historically we see movement increase in early January, especially in a carry market. Movement may not be as high this time, though, as farmers claim to have marketed all of the bushels they intend to for the immediate future.

One factor that is going to prevent heavy cash sales in early 2018 is elevated use of the federal loan program. Farmers are using this to generate income rather than make cash sales. As a result, this makes the corn and soybeans much harder to buy, as the inventory will be used as collateral for nine months. Buyers will be forced to pay a premium to entice movement if this does in fact take place.

Ethanol profitability is becoming a concern for that industry. Nearby processing margins are holding close to unchanged. The concern is that deferred margins are nearly all in the negative territory.

The recent rally in energy values has benefited ethanol margins, as have depressed corn values. We have seen ethanol reserves build to record levels, though, which is a main source of pressure.

The real story in the ethanol market this year is in China. China wants to expand its ethanol production considerably, to continue working through its large corn reserves. We have already seen this move turn China from being an ethanol importer into an exporter. Thoughts are this will be a shift that will last for several years, and cut into the U.S. share of the global market.

The U.S. soybean market continues to see global trade competition from Brazil. This is highly unusual, as Brazil is normally absent from export trade during the winter months, until its harvest takes place.

The fact Brazil is still exporting shows us its old crop reserves were quite high this year. It is also a strong indication that Brazilian farmers feel comfortable with their new-crop production. This move is also tied to currency exchange rates, which favor the selling of soybeans in Brazil rather than holding them as an investment.

There is a development in the Brazilian farming economy that is gaining attention. It is reported that just 19 percent of Brazilian farmers are now self-funded, the least amount in the past 10 years. Many producers in Brazil have returned to the barter system for financing, where they trade a percentage of the crop for needed inputs. This is raising questions over Brazil’s ability to expand acres enough to satisfy an ever-growing global soybean demand.

Trade is starting to make predictions for what could take place in the market following the start of the new year. There is speculation that financial investors will reduce their positions in commodities as we move into 2018. If correct, this would cause additional selling pressure on the futures market.

Economists are wondering how much more selling we can see, though, as funds are already sitting on a sizable short position in the grains.

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.