By KARL SETZER
Market Analysis 

Very few changes were made in the October supply and demand report. Corn yield increased 2.5 bushels per acre to a 174.2 national average. This is expected to give the United States a 14.48 billion-bushel crop and ending stocks of 2.08 billion. The only increase to corn demand was 50 million bushels for feed.

Soybean numbers were reduced, but had little reaction in the market. Soybean yield increased half a bushel per acre, to an average of 47.1 for the nation. Total production increased to 3.93 billion bushels, but total soybean supply decreased following the reduction to old-crop carryout from the September stocks report.

This change was enough to reduce soybean ending stocks to 450 million bushels, which is still a historically large number. No changes were made to soybean demand in this month’s report.

There are legitimate thoughts in the market that if the current price spread between corn and soybeans continues we will see a major shift in acres next year. Many producers have already indicated they will plant more soybeans, as that crop carries a lower cost of production.

In order to prevent this shift in plantings from happening, new-crop corn values will need to rally 75 cents or new-crop soybeans will need to break almost $2 per bushel.

While global soybean demand has increased considerably in recent years, so has soybean production. In just the next 12 months it is likely we will see world soybean production increase between 50-55 million metric tons (mmts). This would be faster than the projected increase in soybean demand, even with China factored in.

Another difference between this year and last is the lack of soybean displacement, which supported old-crop soybean values much of the marketing year.

While it is likely we could see global soybean production increase, just how much is being heavily debated. Both U.S. and South American farmers are expected to increase soybean acres this coming year.

Plantings are just one factor in crop size, though, and some analysts are already pointing out possible weather threats in South America. Any yield loss will need to be significant to change the current opinion in the soy complex.

It was initially thought that reduced commodity values would impact acreage expansion in South America, but this may not be the case. Farmers in South America, mainly Brazil, claim they will plant the same number of acres if not more, and instead cut back on inputs to improve cash flows.

It is still not out of the question that reducing the use of fertilizer and chemicals could lower yields.

There are concerns in the market over recent dryness in northern Brazil and what it could mean for soybean production. The last time drought was in South America was in 2011, when Brazil’s soybean crop was cut 13 percent and Argentina’s was reduced by 18 percent.

A repeat of that situation this year would cut South American soybean production by 22 mmts. A sharp reversal in market direction would follow this size of reduction.

The soybean complex continues to be stressed by thoughts last year’s U.S. crop was underestimated. The last time the soybean crop was revised upwards a considerable amount was in 2007. That year the USDA found 91 million bushels more old-crop soybeans than what was used in balance sheets.

While it is unlikely we will see old-crop production increased that much this year, the simple fact the United States did not run out of old-crop reserves is being viewed as negative.

Economists have released their net farm income projections for this year, and the numbers are sobering, to say the least. Lower commodity values are forecast to drop net farm income levels back to those seen from 2003-08, when they averaged from $40,000-$60,000 a year.

This is well short of the $120,000-$190,000 seen from 2009 through last year. What is most concerning is that the bottom 20 percent of the farmers in this range will show unprofitable returns.

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.