We are starting to see more estimates released on potential new-crop balance sheets. Given all the issues the corn crop is facing, many analysts have lowered production forecasts and new-crop carryout totals. Most believe new-crop corn carryout will fall between 1 and 1.5 billion bushels at this time. At the same time, it is likely we will see elevated soybean plantings this year, and with questionable demand, we could see new-crop soybean carryout top 1 billion bushels as well. It is not out of the question that new-crop ending stocks could be nearly equal between corn and soybeans.
The greatest unknown in production this year is acreage, and trade is starting to hear a different opinion on corn acreage for this year. While total acreage is anticipated to be down from initial estimates, it may be higher than some believe. This is from reports that where planters can roll, farmers appear to be seeding extra acres of corn. This is mainly from price forecasts and the spread between corn and soybeans.
We are also hearing reports of farmers turning to shorter-maturity corn varieties rather than abandoning acres altogether.
We are starting to see a slight shift in market interest from supply to demand, which is not uncommon. For the domestic side much of the interest on corn is on ethanol after the recent change to blending allowances that will make E15 available year-round. Hopes are this will elevate ethanol demand, which is quite likely. The question is if this will call for more ethanol manufacturing, or simply prevent stocks from building to an even greater level.
Trade is also closely monitoring feed demand on corn. We are seeing higher animal numbers in the U.S., but some analysts have been hesitant to increase feed grain demand. This is the result of near-perfect pasture conditions that are preventing cattle from being placed in feedlots.
While it seems unrealistic, these reductions to corn demand are worth noting. Some models currently have corn demand in the 2019-20 marketing year decreasing by 600 to 800 million bushels from this year. This is in part from the record South American crop that may be used in place of U.S. corn. If correct, this lower demand would wash out the drop that is being forecast to production.
For soybeans all interest is on crush. Crush margins remain quite lucrative in the U.S., and as a result, crushers are pushing for inventory. There is some concern over how long this will last, especially with the continued spread of African Swine Fever in Asia. This has dampened demand for soy meal on a global scale. The South American soybean crop is slightly smaller than a year ago, which should benefit U.S. demand.
U.S. exports on a whole are being questioned at this time. One reason for these worries is supply as the world has an ample supply of commodities at this time, even though we have seen a tightening in some regions. This is mainly in corn, where even with record South American production, stocks will tighten for the third consecutive year. The smaller U.S. crop is a primary reason for this. The U.S. may not see elevated demand for its corn, though, as South America is set to produce nearly 1.5 billion bushels more corn than a year ago.
The greatest concern when it comes to U.S. export demand is the ongoing trade issues it has with traditional customers, mainly China and Mexico. China is the world’s leading soybean buyer, and without this demand, the U.S. needs to find new markets. There is also a fear in the global market that even if tariffs are not in place now they may be enacted at any time, which is causing a hesitation when it comes to doing any business with the U.S.
Importers are also unwilling to book needs with a supplier that could face an inventory shortage if crops are as small as some forecasters believe they will be, mainly on corn.
Not only is planting a primary market topic in the United States, but it is already gaining interest in South America as well. Data surrounding farmer spending in Brazil has raised some questions over future production. According to sources in Brazil, farmers in the country have imported 10 percent fewer inputs this year than last as the country’s economy has tightened. The concern with this is what it means for production this coming year, with analysts already predicting smaller crops. While this could lead to smaller Brazilian crops, it is not a given.
This commentary is the sole opinion of Karl Setzer, market adviser for AgriVisor. This is intended for informational purposes only and not to be used for specific trading recommendations. The information used to generate this commentary is gathered from a variety of sources believed to be accurate. If you have any questions or would like additional market information, feel free to contact Karl at firstname.lastname@example.org. You can also follow Karl on Twitter via @ksetzergrains.