The USDA reduced the size of the U.S. corn crop in the July supply and demand report. A corn crop of 13.95 billion bushels is now estimated, compared to 14 billion in June.
Old-crop corn carryout was reduced by 40 million bushels from a month ago, and now stands at 729 million. New-crop carryout was increased by 10 million bushels, to 1.96 billion.
The size of the soybean crop increased by 30 million bushels in the July report, to 3.42 billion. Old-crop soybean carryover was left unchanged at a minimal 125 million bushels. New-crop ending stocks on soybeans was increased by 30 million bushels, and stands at 295 million. This is still a minimal number on soybeans and is a concern to many traders.
Wheat production increased slightly to 2.11 billion bushels in the July balance sheets. Old-crop wheat ending stocks decreased to 718 million bushels, and new-crop dipped to 576 million.
Market analysts continue to make comparisons between this growing season and recent history. Given more favorable weather patterns, trade is now making parallels between this year, 1984 and 2004.
In those years, we saw benign growing conditions and favorable yields. These changes in crop outlooks have caused a decline in weather-related risk premium, pressuring new-crop market values.
The most interest right now in what impact weather will have on yield is on corn. An average U.S. corn yield of 155 bushels per acre this year is possible. If we combine this yield and a harvested acreage projection of 89 million acres, a crop of 14.5 billion bushels is not out of the question.
Even if we would see an increase to normal corn demand, this could still leave the United States with 2 billion bushels of new-crop ending stocks. We are starting to see more of a focus on new-crop demand in the market.
The greatest concern is on soybeans, where even though carryout is expected to double from this year, it will still remain tight and need to be rationed. Given the pace we have already seen on new-crop soybean demand, this rationing needs to start soon.
A large amount of double-cropping is expected to take place in soybeans this year. Trade is predicting double-cropping on 7.7 million U.S. acres this year, compared to 5.4 million last year. Much of this will take place in wheat fields, especially in areas that have received beneficial rains this spring to eliminate drought.
Even though it is a well known fact double-cropping normally yields less than a full-season crop, it will still add soybeans to the U.S. supply.
We continue to see a divergence in crop reports between the Eastern and Western Corn Belts. Weather conditions in the West have greatly improved recently, but there is little doubt at least some acres will remain unplanted due to the late start to the season.
In the East we are hearing reports of much better crops, but some regions are starting to claim they are in need of precipitation. The question is if the East can produce enough extra corn to make up for any possible shortfall in the West.
Even though much of the Corn Belt is still focusing on planting and crop conditions, we are quickly approaching corn harvest in the South. By the end of next week we could easily start to see new-crop corn from Mississippi and Georgia in the cash market.
Corn harvest is expected to be in full swing across the Delta by Aug. 1. While we won’t see the volume of new-crop corn in the old-crop market that we did last year, there will still be enough to ease any concern over old-crop shortages.
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.