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KARL SETZER

Few surprises on balance sheets

June 16, 2017
Farm News

No changes took place to the domestic corn balance sheets for either old nor new crop in the June supply and demand report. This left old crop ending stocks at 2.29 billion bu and new crop at 2.11 billion bu. We did see a change to the global side though, as stocks decreased 1 million metric tons from the May figure. This is not that concerning though, as reserves are still more than adequate.

We did see changes to the domestic soybean balance sheets, but these were minimal. The USDA reduced old crop soybean crush by 15 million bu, which put ending stocks at 450 million bu. This carried directly into new crop ending stocks and increased that figure to 495 million bu. The USDA increased the global soybean carryout figure to a large 92.2 million metric tons in response to larger crop estimates out of south America.

Wheat balance sheets were also mostly unchanged. Old crop U.S. wheat carryout is projected at 1.16 million bu, a minimal 2 million bu increase from the May estimate. New crop ending stocks are now projected at 924 million bu. The world wheat supply is also forecast to increase by 3 million metric tons to a comfortable 261 million metric tons total.

We are now at a critical period for planting across the Corn Belt. This is because we are now at the stage where many farmers in the wettest areas can take prevent plant insurance if they so desire to. There are thoughts this will reduce the number of corn acres planted in the United States this year, and possibly increase soybean acres. While this may be true, it appears as though any shifting of acres will be minimal.

Ethanol production is giving trade mixed signals. For the year ethanol production on a whole is up 5.5 percent from a year ago. At the same time, ethanol reserves are nearly 10 percent greater than last year. This has generated thoughts that production will decrease as the year progresses, and lower corn usage from the current 5.5 billion bu estimate being used in balance sheets.

More trade focus is being placed on the dry conditions in the Dakotas and what they mean for production, mainly on corn. The only two drier springs than this one were 1980 and 1988 according to data from F.C. Stone. Corn yield was sub-trend in both of those years, with 1988 seeing a final yield that was just 88 percent of trend. A repeat of this deviation would remove 110 million bu from the U.S. crop.

A question in the market recently has been why we have not seen more reaction to weather issues across the United States on a whole? This is mainly from the fact that today's crops are able to better stand adverse weather than those planted just a few years ago. There are several years in recent history where less than perfect weather has had little impact on final production. As a result, traders are more hesitant to add risk premium into futures values.

Now that we have started to see futures react to weather conditions, the primary question being asked is how long we may see values appreciate. While every year is significantly different, last year our weather market lasted six weeks and added 64 cents to corn values. The prior year corn futures rallied for three weeks but gained 76 cents. One major difference between those years and our current year is the greater abundance of corn inventory to cushion any possible short-fall in production.

Trade is starting to focus on how much replanting has been done across the Corn Belt. In the state of Indiana alone it is being reported that 1 million corn acres have been reseeded. This replanting could easily delay crop maturity, and make the crop susceptible to late-summer heat. We could easily see yield affected as a result.

The world commodity market is going to see elevated competition from Brazil this year for exports. Brazil is expected to export 234.3 million metric tons of commodities this year compared to 186.6 million metric tons a year ago. This is the result of a rebound in corn production and a larger soybean crop. This means all other sources, including the United States, need to be more competitive on price than in the past to maintain a share of the global market.

Karl Setzer is a Commodity Trading Advisor/Market Analyst at MaxYield Cooperative. His syndicated 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 believed to be accurate. This commentary is intended for informational purposes only and is not intended for developing specific commodity trading strategies. Any and all risk involved with commodity trading should be determined before establishing a futures position.

Karl Setzer is a commodity trading advisor/market analyst based in the West Bend office of MaxYield Cooperative. He can be reached at (800) 383-0003.

The opinions and views in this commentary are solely those of Karl Setzer. Data used for this commentary obtained from various sources believed to be accurate. This commentary is intended for informational purposes only and is not intended for developing specific commodity trading strategies. Any and all risk involved with commodity trading should be determined before establishing a futures position.

 
 

 

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