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KARL SETZER

Stocks, production figures contain few surprises

January 19, 2018
Farm News

The USDA bumped up the national average corn yield by just over 1 bushel per acre in the January supply and demand report to a 176.6 bushel per acre average. This was enough to increase total crop size to 14.6 billion bu, and with current demand, will leave the United States with 2.47 billion bu of carryout. We did see an increase in global corn stocks which increased 2.49 million metric tons to a 206.6 million metric tons total.

The USDA actually made a small decrease to the national soybean yield, putting it at 49.1 bushels per acre. This was enough to decrease crop size as well, as we now have 4.39 billion bu of production. The U.S.D.A. made several changes to soybean demand though, which were enough to raise carryout to a comfortable 470 million bu. The global soybean reserve also increased a small amount to a 98.6 million metric ton total.

We did see an increase to the wheat carryout estimate of 29 million bu, placing it at a comfortable 989 million bu. This increase was the result of a decrease to wheat feeding as corn remains the cheaper feed grain.

The grain and soybean reserves as of December 1st were also reported in this release. Even with several changes to production and usage, the stocks numbers were actually little changed from a year ago. At the end of the 1st quarter the United States had 12.5 billion bu of corn, 3.15 billion bu of soybeans, and 1.87 billion bu of wheat in inventory. These were slight increases on corn and soybeans, and a minimal decrease on wheat.

There is a significant difference between this years and those in recent history for the U.S. soy complex. In the most recent years we have seen U.S. soybean carryout start out high and then erode as the marketing year progresses. Given the ongoing pressure in the global market from Brazil we could actually see our carryout increase this year. Even if it simply holds steady at its current level the market would struggle to rally.

Trade is also looking at how many days of corn and soybean usage current ending stocks would cover. As expected, this is more than in recent years. Right now the U.S. will have 61.4 days of corn needs covered with our projected carryout. For soybeans this is 37.74 days of demand. These are not levels that would cause buyers to show urgency in covering needs ahead of time.

We have recently heard reports that soybean usage will increase in the United States in the near future. Several crush facilities are expanding operations and hope to add nearly 120 million bu of demand by the end of 2019. While this is positive news, U.S. soybean production has been increasing at an equal rate in recent years. This demand may prevent stocks from building as fast as they have in the past few years, but they may not reduce our carryout as much as hoped.

Trade is starting to pay closer attention to the lack of precipitation across the Corn Belt in recent weeks. Since the end of harvest very little precipitation has been received. As a result, we are already starting to see drought conditions expand. While this is far too early to impact production, trade will keep an eye on it as the spring planting season approaches.

A more immediate reaction to dry conditions is how it is impacting commodity movement on U.S. waterways. Water levels have dropped to a point where barge draft is again being reduced. In turn we are seeing higher rail bids, which can be more favorable for the interior market. The total impact of this will be more limited than it was in summer months though, as barge movement is much lighter in the winter to begin with.

We continue to hear concerns voiced over the quality of this year's soybean crop, mainly oil and protein content. These are not deterring export sales, but they are affecting what an importer is willing to pay for them. What we could easily see take place this marketing year is fewer sales of whole soybeans and more interest in meal and oil. The content level of oil and protein in South America's crop once harvest starts will also impact what can be asked for U.S. soybeans.

While it has been a topic since the end of harvest, we are at a stage of the marketing year where more attention will be placed on country movement. Buyers have been hoping we would see elevated country movement in early January and have been holding back on bids in anticipation of it. Some buyers have even resorted to pulling deferred sales forward to cover needs until we could get to this point. If movement does not increase as expected, we could see much improved basis values as a result.

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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