Now that the U.S. harvest is in its final stages, we are starting to see a shift in market attitude. Trade interest over the next few weeks will begin to focus more on demand than production.
This could be an issue for corn, as demand for that grain has been slipping all marketing year. This could easily pressure corn futures, even if we would happen to see a reduction to yields.
We continue to hear debate over corn demand and final stocks. The USDA keeps lowering U.S. corn demand projections, and some economists believe this is simply a move to match lower production.
This seems unlikely, given the fact lower demand can be proven, especially from exports and ethanol manufacturing. It’s also a fact that even though the corn carryout estimate has decreased in recent months, it is still at a non-threatening level.
It is also possible any tightness in corn reserves will be short-lived. At the present, new-crop corn is holding a $200 per-acre advantage over soybean production. It is quite likely this price spread could sway acres from soybean production, or at the least prevent corn acres from slipping away.
It is not out of the question that with this year’s acres and a rebound to trend yields, new-crop corn reserves could swell to more than 2 billion bushels.
Slowing demand is not a concern in the soy complex; in fact, quite the opposite is true. The United States already has 82 percent of its yearly soybean sales on the books, compared to just 45 percent a year ago.
How fast the U.S. reaches its goal or possibly passes it depends heavily upon China. There are thoughts China already has 83 percent of its yearly soybean needs covered, which will greatly reduce demand for the remainder of the marketing year.
It is quite possible this soybean demand will not slow anytime soon. Brazilian officials have indicated they will not offer soybeans for export until March, and it is not out of the question the United States could see current soybean demand last until April, possibly May, if this happens.
Brazil has a tendency for logistic issues when starting its export program. Satisfying this additional soybean demand will be nearly impossible, and would likely cut domestic reserves to a minimum.
Trade continues to debate planted vs. harvested acres on corn. The USDA increased harvested acres from the September to October production reports, something that has only happened three times in the past 47 years.
In each of those years, acres in the final report in January were again higher. This may be compensated for in yield though, as corn yield has dropped from October to November for six straight years.
There is also confusion surrounding soybean acreage. Soy acres also jumped from the September production report to the October one, a move that has only happened four times since 1965.
In those years, final acres were higher twice and lower twice. Even in the drought year of 1988, final soybean acres increased by 1.5 million.
The economic situation in ethanol is starting to make headlines. It is not out of the question that some of the nation’s ethanol manufacturers could face bankruptcy if positive margins do not return in the near future.
This is concerning, as current outlooks do not see profitability returning to the industry for at least a year. Research from F.C. Stone indicates 10 percent of the nation’s ethanol plants could face default as a result.
Analysts are starting to look forward to next year’s grain production possibilities on a whole. The United States has seen three consecutive years of sub-trend yields. This is a scenario that has only happened twice since the 1970s.
What is the most concerning is that each of these was followed by a fourth year of below-trend yields.
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.
This commentary is intended for informational purposes only and is not intended for developing specific commodity trading strategies. Any and all risk involved with commodity trading should be determined before establishing a futures position.