By KARL SETZER
Market Analysis 

Many involved in the commodities market believe this is the time of year when corn and soybeans start to compete for acres with higher futures. This is not necessarily the case and, in some years, futures erode to a point where production is not economical.

It is not out of the question that this could take place in soybeans this year. There is a legitimate concern if the mentioned acreage shift to corn does not take place, next year’s soybean ending stocks could swell to some of the most burdensome in history.

In fact, higher soybean values could be one of the most negative things that could happen in that complex. If soybean futures rally in today’s market it will not benefit U.S. production, but rather production in South America.

This would add an even larger volume of soybeans to the global supply than an increase in the United States might. As a result, any rally in soybeans may not come until the end of South America’s planting season.

We have seen an increase in demand for U.S. soybeans in the global market recently, but not to a point that would significantly change the outlook of the complex. Cumulative soybean bookings are well behind normal, so not only do we need to catch up on sales, but we need to continue with an elevated pace to change the mindset of the current market.

The longer it takes for the export program to get underway, the harder it will be to maintain. This is no different than last year when the market rallied to ration soybeans.

Economists continue to point out how China’s soybean demand may erode this year due to poor returns and a negative financial market. While this in fact could happen, to see China’s soybean usage drop a considerable amount is unlikely.

China still has hogs to feed and is in need of protein-based foods. What is more likely is that China will become more selective in its purchases, and likely take alternative feed grains when possible to maintain margins.

Trade is receiving mixed signals on South American soybean production for this coming year. South American farmers are receiving more for their crops this year because of favorable currency rates, but are also paying more for inputs.

The weak currency rates in these countries have also limited the amount of credit farmers are able to receive. As a result, input sales in South America are down a reported 11 percent from a year ago.

Trade is also focusing on the fact South America is holding a record volume of soybeans it still needs to move. While this is not uncommon in Brazil, reports indicate Argentina is also sitting on large soybean reserves.

Given the fact soybean planting is beginning in Brazil, we may start to see more of these soybeans sold. This is especially true given global economic and currency exchange rates.

The global balance sheets on soybeans are causing some confusion for traders. Many economists believe global supplies will shrink this coming year, even with large crops in the United States and South America. This is from simple demand, mainly from Asian countries.

While this is possible, there is also a chance even if global balance sheets tighten on soybeans, the United States could see elevated stocks as buyers opt for South American-origin soybeans.

The current El Nino is still a topic in today’s market, as forecasters believe the system will last through the winter months. The system remains one of the strongest in history, and is expected to bring a warmer to much warmer winter to the Corn Belt.

In similar years this has been followed by a wet spring, but early summer. One of the previous times this happened was in 1982-83, when drought cut U.S. production considerably. Another was in 1997-98, when yields were just over trend.

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.