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USDA tightens soybean and corn reserves in July report

 

By KARL SETZER
Market Analysis 

Few changes were made to corn numbers in the July supply and demand report. Yield was left unchanged at 166.8 bushels per acre, but crop size was reduced 100 million bushels to reflect the acreage numbers from the June 30 USDA report.

Old-crop ending stocks were just under the total in June at 1.79 billion bushels because of less competition in the feed market from wheat and the high numbers we have seen in ethanol manufacturing. This 100 million-bushel reduction carried over to new crop, where ending stocks were estimated at 1.6 billion.

Yield was also unchanged on soybeans, with 46 bushels per acre, but crop size increased to 3.88 billion bushels, again reflecting the revised acreage numbers from the USDA. Old-crop soybean reserves were cut a larger than expected 75 million bushels as crush, exports and residual usage all increased.

This put old-crop ending stocks at 255 million bushels. New-crop carryout on soybeans only decreased 50 million bushels, though, due to a larger production forecast, and remains at a comfortable 425 million.

Changes to the wheat balance sheets were minimal. Old-crop wheat carryout increased 41 million bushels because of a reduction in feed usage, putting ending stocks at a large 753 million. New-crop wheat ending stocks also increased 28 million, putting it at an even larger 842 million bushels.

Trade continues to monitor the wet soil conditions across the United States and the impact they could have on crop production. The wettest area of the Corn Belt could see a corn production loss of 25 percent. Soybean production loss is nearly as high, at 23 percent. In these areas this would equate to roughly 825 million bushels of corn and 220 million bushels of soybeans.

Possible production losses in these areas are not just from flooding. We are hearing more concerns over fertilizer loss this year and how it may impact crop development and yield. This is especially the case in corn – some agronomists claim this factor alone could reduce corn yield by upwards of 10 bushels this year.

Trade is still looking at years that compare with our current one and what impact wet soils had on acres. The three most recent are 1993, 1995 and 1996. In those years corn acres decreased from the June to the final acreage number in September by between 500,000 and 1.2 million acres.

In the same years, the United States lost soybean in acres in 1993 and it was mixed in the other two.

There is one major difference between this year and previous wet ones. The last year when plantings were significantly delayed was in 2008, especially for soybeans. Producers were still willing to seed a large amount of soybeans, though, mainly from the fact futures were hovering around the $15 mark.

This year, a producer may actually have a better cash flow by taking insurance than trying to plant a crop.

Market attention is still on the current El Nino weather pattern. The question with this event now is how long it may last. Most forecasters believe we will see favorable conditions through the critical reproduction stages for both corn and soybeans this year. This is giving support to analysts who are still predicting above-trend yields for this year’s crops.

We have seen strength in the futures market recently and there is speculation this is the start of a major rally. While this is possible, there is a difference between a recovery and a longstanding rally.

A true rally does not need to see a bullish story every day, but it does need a constant supply of fresh news. This makes the early stages of a rally much easier to cover than the later, and can easily stall the market.

We also need to remember that a rally in futures does not necessarily mean a rally in the cash market. In fact, these two markets are usually quite different.

A futures market tends to be nationally or even globally driven, while a cash market is local. This year the difference may be more pronounced, as the amount of farm-stored inventory is much greater than normal.

 

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.

7/16/2015