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Market division on old and new crops more apparent

 

By KARL SETZER
Market Analysis 

We are starting to see more of a division in the market between old- and new-crop contracts. Old-crop supplies of both corn and soybeans remain adequate, even if we would see a slight increase to usage from current estimates.

For new-crop we are seeing more interest in corn, as there is little risk premium in that commodity, and the global stocks-to-use is not as bearish as some analysts claim it to be. The same is not true on soybeans, where a large South American crop is expected to weigh on values in the foreseeable future.

More market attention is being placed on spring weather outlooks as we get closer to the upcoming planting season. Trade remains unconcerned with spring weather outlooks, as most are calling for benign conditions to persist. These are being verified by forecasts for a 50 percent chance of the current El Nino continuing through summer.

Historically, an El Nino is associated with favorable growing conditions across much of the United States. At the same time, the first questionable weather outlook could easily cause active buying in the new-crop contracts.

Some forecasters are already stating they believe the United States will face planting delays this year, primarily in the Eastern Corn Belt. While there is a possibility of planting delays in that region and, in fact potentially the entire Corn Belt, it is too early for the market to respond to the speculation.

Trade is well aware of how fast the United States can see its crops planted, and will be slow to react to such stories at this time. One region of concern with weather is the Gulf, where corn planting is well behind average, and some fields have not seen fieldwork at all. Another is the Plains, where winterkill is being reported in wheat.

There are concerns in the market that the United States is overpriced on grains and soybeans. In recent weeks we have seen buyers pass on U.S. grains in favor of cheaper supplies from the European Union and Black Sea markets. We have also seen buyers show more interest in South American soybeans.

The strong value of the U.S. dollar in the market is also encouraging sales from most countries competing with the United States for export business.

Another impact of a stronger dollar that is starting to be mentioned is its effect on foreign economies. The Brazilian real has dropped in value at the same time the dollar has rallied. This could generate revenue that Brazilian farmers were not counting on, and allow them to invest it in their operations.

One of the biggest investments may be in land for soybean production, which is also the one that is most needed by the global market.

While a stronger dollar does increase the value foreign countries will receive for their commodities, it does not mean sales have taken place. A strong dollar can also increase the cost of inputs for production and have a negative impact on returns. This is especially the case in countries where currency values have eroded at the same time the dollar has rallied – such as in Brazil.

Some analysts believe soybean demand is being underestimated at present, but just as many feel the same way on production and stocks. This is especially true on new crop, where stocks will likely build again next year.

Even if the United States would produce just a normal-yielding crop, some analysts believe new-crop ending stocks will approach 500 million bushels at the end of the new-crop marketing year. Even those who are more bullish believe new-crop ending stocks will hold above 300 million bushels.

This soybean supply and demand situation is not limited to the United States. Argentine farmers continue to withhold soybeans from the global market, as they are worried over the state of their country’s economy.

The high taxes the Argentine government has imposed on soybean sales are also limiting movement at this time. As a result, the Argentine government has announced soybeans being stored need to be registered, to better track inventory.

 

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.

3/25/2015