By KARL SETZER
Market Analysis 

The South American soybean harvest is under way, but so far this has yet to impact the global supply of that commodity. This is from the historical tendency for a slow build to South American soybean exports.

Last year it was April before a shift of any significance was noticed. This year may be different, though, as South America is holding more old-crop soybeans than in recent times.

Many of the soybeans being held in South America are in Argentina. In Argentina alone there are an estimated 7 million metric tons more soybeans in storage than a year ago at this time. Some of these soybeans may now start to move, as currency exchange rates favor commodity sales.

While this may seem negative, the fact that these soybeans may hit export terminals at the same time as new crop could cause enough congestion to slow loadings, and actually favor the United States.

There is little doubt soybean demand will decline once the South American harvest gains momentum, but how much is the question. If we do not see a sizable drop in soybean exports, total usage could be up to 250 million bushels larger than what the USDA is expecting.

If correct, this drops absolute ending stocks to 160 million bushels from today’s projected total. This is enough to put the United States back into a rationing situation, and one of the primary reasons for limited downside risk in soybeans at the present time.

The greatest unknown in future soybean demand remains China. Much of the demand we have seen from China in recent history has been to produce hog feed. Chinese authorities now report record stockpiles of pork, and farmers are reducing their sow numbers. While this does not mean we will see soybean demand falter, it may not grow at the pace we are accustomed to seeing.

Just as hopes of increased corn demand started to surface, changes in market fundamentals have brought usage into question. The main worry is in ethanol manufacturing, where profit margins have collapsed following the drop in energy values.

There are now reports of ethanol plants slowing production in hopes margins will be quick to return. This will put more emphasis on exports and feed demand to work through our large corn stocks.

Corn is still taking support from new-crop acreage concerns, though. It is a well-publicized opinion that U.S. farmers will seed fewer acres of corn next year in favor of soybeans. While a quick look at market economics would support this theory, a closer look brings the prediction into question.

Farmers are holding a large amount of deferred income from last year, which can be used to subsidize new-crop sales. Farmers can also adjust input levels to make corn more favorable than soybeans, if needed.

One factor that could end up impacting all commodity trade in the not-so-distant future is the value of the U.S. dollar. The dollar is now trading at its highest level since 2005, and since the value of the global grain market is based on the U.S. dollar, we may start to see more sales from foreign countries that have been holding inventory. This comes at the same time South America starts putting its new-crop supplies on the market.

It is not out of the question we could see a flush of old-crop inventory hit the export channel from South America, followed directly by new crop if the U.S. dollar remains strong.

Country movement of on-farm stored inventory has not been as great as expected following the first of the year. One of the primary reasons for this has been weather, as conditions have not been conducive to grain movement.

Another is the fact several farmers collected on defer pay contracts and have adequate cash flow, reducing the need to make sales. This has allowed basis to firm, primarily on corn.

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.