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KARL SETZER

U.S. grain/soybean reserves decline

June 22, 2018
Farm News

The USDA made moderate reductions to both old and new crop corn carryout projections in the June supply and demand report. Old crop ending stocks decreased 80 million bu to a 2.1 billion bu total, and new crop decreased 105 million bu to a 1.57 billion bu total. These were both larger declines than what trade was expecting. World corn ending stocks were cut 4.46 million metric tons due to the smaller crops in South America and the elevated demand for U.S. corn.

Reductions also took place in the U.S. soybean balance sheets. Old crop stocks were reduced 25 million bu for a 505 million bu total, and new crop decreased 30 million bu to a 385 million bu total. As with corn, these reductions dropped ending stocks below the average trade guess. These domestic declines were off-set by an increase in global carryout of 1.5 million metric tons from the larger Brazilian crop.

Very little was changed in the wheat balance sheets. Old crop stocks increased 20 million bu while new crop declined 9 million bu. While these were minimal changes, the simple fact that wheat stocks did not increase gave the complex some much needed support.

The firm CONAB also updated their Brazilian production figures this week. CONAB is projecting a soybean crop of 118 million metric tons this year, up 1 million tons from their May estimate. The group's corn estimate is now at 85 million metric tons, a large 4.2 million metric ton decrease from May. On the year Brazilian soybean production is expected to increase by 3.5 percent, while corn production will be down 13.1 percent.

We are already starting to hear conflicting opinions on what we could see for corn yields this year. Just because corn planting has been delayed in some regions of the Corn Belt it does not necessarily mean yields will be down. This was proven in Illinois last year where planting was delayed yet the state still averaged a record 201 bushels per acre on corn. Near perfect growing conditions once the crop was planted is the reason for the high corn yield.

There are groups that are agreeing with this corn possibility. One in particular is gaining attention by claiming there is a 50 percent chance the U.S. corn yield will fall between 1 percent under to 4 percent above trend. They add that there is a 25 percent chance of a corn yield that could be even higher than this. On the down side, it is only believed there is a 10 percent chance the U.S. corn yield will be greater than 5 percent below trend at this time.

This year's crops are also progressing at a faster than average rate. There were concerns that the slow start to the planting season could mean crops would mature later and be affected by late summer heat. While this is still a possibility, the chances of it happening are diminishing. This does not mean crops will not face adverse weather, but rather that the need for risk premium has been reduced at this time.

A concern in the market that has passed is the possibility of acres shifting from corn to soybeans. Initial delays sparked concerns a large amount of acres may shift from one crop to the other. It is now believed that any shifting will be minimal and confined to small regions of the Corn Belt. Trade is even less worried about spring wheat acres shifting to alternative crops, which has been a benefit for the soy complex.

We are starting to see more positioning ahead of the U.S. planted acreage revisions that will be released at the end of the month. Privates have been releasing their estimates and are calling for upwards of 1 million more corn acres than in the March intentions. Soybean acres are thoughts to be 400,000 higher. If correct, this will take away some of the need for higher yields to satisfy demand, especially on corn.

Just as much interest is on what we could see for stocks at the end of the month. Farmer movement has been sluggish in recent weeks, giving the indication we could see high on-farm reserves. While possible, a lot of inventory moved early in the quarter, especially soybeans. This stocks report tends to receive more attention than the others as it gives us a clearer indication of final carryout.

Chinese soybean demand remains less than what trade was using in global balance sheet projections. One reason for this has been an increase in use of domestic reserves, but so is a reduction to usage on a whole. Hog margins are negative at this time, which has slowed expansion, and eased up on the demand China was seeing for soy meal. Until this consumption rebounds, the ever-growing demand base we have seen in soy meal is likely going to slow.

An even bigger influence on Chinese soybean usage is the elevated production of ethanol and the resulting distiller grains. China has increased domestic production of ethanol to use up its burdensome corn reserve, and in doing so, has produced 30 million metric tons of DDGs. Analysts claim this could eventually off-set nearly 10 million metric tons of soy meal demand. When combined with elevated domestic soybean production, this could lower imports even more.

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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