Market guessing at potential yield loss for corn still in-field

By KARL SETZER
Market Analysis

The USDA left the U.S. corn yield and crop size unchanged in the December balance sheets, but did adjust usage. This was a minimal 10 million-bushel increase to food, seed and industrial use, and it still leaves the United States with a large 1.99 billion bushels of ending stocks. Stocks-to-use on corn was also unchanged at 14.6 percent, and does not indicate a price rally.
As with corn, soybean yield and crop size was unchanged in the December balance sheets. We did see a 40 million-bushel increase to soybean exports, though, which lowered ending stocks to 410 million. This is still a large amount, and gives us an 11.2 percent stocks-to-use.
The domestic wheat numbers were the most bearish, as the USDA increased imports 10 million bushels and, in turn, raised ending stocks to a comfortable 654 million bushels.
The most negative number in the December supply and demand report was on global soybean reserves. Global soybean reserves are forecast to total 3.3 billion bushels at the end of this marketing year, which is a 113-day global supply.
This would be more of an issue if not for the global soybean market being replenished every 180 days. This gives global soybean buyers little reason to push current soybean bids. The fact some of this year’s has yet to be harvested may not all be from weather conditions.
Some producers across the United States have simply decided to leave their crops in the fields until they can be directly delivered. This is especially the case on corn, where the crop is standing fairly well. A lack of storage and interior logistics are also a few of the reasons we have yet to see some cornfields harvested.
The question with this practice is what impact it may have on yields. The main threat of leaving a corn crop stand is that severe winter weather can cause ear loss, but it is also not uncommon to see quality issues develop. There is not a set number on how much yield can be lost, though, as some years little if any has taken place, while in others yield loss can approach 40 percent.
Economists continue to point to how nearby U.S. corn is currently overvalued. At present buyers can secure corn needs from other sources at a 25- to 35-cent per-bushel discount to the United States.
The main competition is coming from Ukraine, which is where many traditional U.S. corn buyers have gone for needs. The primary reason U.S. corn is holding a premium is some traders believe higher values are needed to encourage new-crop plantings.
Not only could price deter buyers from coming to the United States for corn needs, but so could quality. This year’s corn crop has the potential to go out of condition fast, and buyers are not willing to pay a premium for low-quality commodities.
This is the same issue for soybeans, as this year’s crop appears to have lower-than-normal oil content. Logistics also remain an issue for the export market, mainly the ability to ship grain to the Gulf given the early onset of winter across the Midwest.
Now that the calendar has turned to December, more interest will be placed on year-end positioning. It has been thought for some time funds will liquidate a portion of their long positions into the end of December, especially on corn. It is then believed funds will be buyers in early 2015.
Given the recent lack of fundamental supportive news, this fund balancing or lack thereof will dictate market direction.

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.