Trade continues to be heavily influenced by the outside markets. One of the main of these is the involvement in commodities by speculative investors.
Many of these investors bought commodities and planned on holding them as long-term investments. This theory works in the financial markets, but not in commodities, and now has many of these investors rethinking their positions.
Concerns are also building over how the financial markets could impact the commodities this calendar year. There are indications we could see a rise in interest rates by the end of 2013; the concern is a rise in interest rates at the same time we see a decline in commodity values.
If the combination of these two factors would happen at the same time, it would likely have a significant impact on agriculture profits.
Another influence on U.S. agriculture in the future will be increased production in South America. Over the past four years we have seen soybean production in Argentina and Brazil increase by 12 million acres.
Some field scouts claim increased profits will cause an increase in acreage of 11 million acres this year alone. These added acres and improved yields will make South America much more of a competitor for the United States in the export market.
Argentine corn planting is quickly catching up to its normal pace. An estimated 85 percent of Argentina’s corn crop is now seeded. This is less than 2 percent behind the normal rate for this time of year.
Analysts are now starting to question how much yield has really been jeopardized from initial delays. The real question is how the late start will impact potential double-cropping.
Even though harvest is under way, we continue to see estimates released on Brazil’s crops. Brazil’s government projects a corn crop of 72.2 million metric tons (mmts) and a soybean crop of 82.68 mmts.
Brazilian officials believe we will see more exports out of Brazil as a result of the higher production, especially corn. Brazil’s corn exports are now forecast at a record 21.5 mmts for the marketing year.
Brazilian officials are also projecting a record sugarcane crop, and that could end up having more of an impact in U.S. agriculture. It is currently believed Brazil will harvest a sugarcane crop of close to 600 mmts, roughly 15 percent larger than a year ago.
A result of this increased sugar crop size is an expected rise in ethanol manufacturing. Brazil is also forecasting larger ethanol exports in 2013, and come close to 250 million gallons.
Trade continues to closely monitor U.S. weather outlooks. At present a mild La Nina pattern is being forecast for the United States. If correct, this would increase the chances of a drought in the U.S. this growing season.
While four years of sub-trend yield from drought is uncommon, it has happened. The fact remains, a large amount of risk premium is already in the market, though, and further advances from weather at this point are questionable.
Debate is increasing over just how much corn the United Sates is consuming. At present U.S. corn exports are running 55 percent behind a year ago. The U.S. ethanol industry is also showing signs of decreased corn usage or, at best, a steady amount compared to last year.
The unknown is how much corn the United States may be exporting through beef, pork and poultry, as feed demand in the United States has been on a steady increase.
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 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.