The greatest issue for commodities at the present time is simply supply versus demand. While we have seen steady commodity demand this year, it has not been up to projected levels, and not nearly enough to keep reserves from building. This is not just on the domestic side, but from a world prospective as well.

The commodity suffering the most from this is soybeans. At the present rate of sales, yearly totals will fall 400 million bushels short of estimates. There are hopes that the trade talks between China and the U.S. will progress to a point where trade will resume, but these are starting to fade. The latest on these talks is that they will not resume until June. By then, the U.S. will be past the point of the marketing year when old-crop exports tend to take place. A greater concern for soybean demand is the cancellation of already-booked sales.

We are also seeing concerns over wheat demand. At the present time the United States has only booked 66 percent of the total yearly sales that it is expected to make. This is a record-low volume, with little time left in the old-crop marketing year. The U.S. is competitively priced on wheat in the global market, but the fact that world supplies are so high means there is little incentive for a buyer to come to us for needs. This is mainly due to lower freight costs from other origination points for buyers than the U.S.

While also depressed, demand for corn is getting less market attention. This is because the stocks-to-use ratio on corn is tighter than on soybeans or wheat. We have also seen a steadier demand base on corn, including a recent sale to China. This failed to receive much of a reaction though, as the sale was less than what had been expected from trade talks. China also left all GMO restrictions out of the sales contract, which leads many analysts to believe the booking will eventually be canceled altogether.

One point that our export market has going for it is that eventually the U.S. will become the most economical source for needs and we will see demand build.

The recent flooding across the Midwest is also impacting commodity demand, mainly corn for ethanol. A reported 13 percent of the U.S.’s ethanol manufacturing capacity was forced off-line due to floods. Damaged rail lines from flooding have also prevented terminals from making shipments to processors and exporters. This could be a factor for several more weeks, and possibly months.

Spring weather on a whole is becoming more of a market topic. While there is still plenty of time to get the crops planted, some long-range models indicate the wet pattern across the United States will continue. A few of these are calling for flooding to last for the next six to eight weeks. This would be a game changer for not only production, but acres as well. At the same time, we are seeing forecast models calling for El Niño conditions to impact this year’s growing season, which are historically associated with above-trend yields. These two conflicting outlooks are preventing trade from adding any amount of risk premium to futures values.

These weather conditions are starting to bring into question the U.S. Department of Agriculture’s acreage estimates for this year. The USDA is predicting we will see an increase of 2.4 million acres to corn plantings from last year. This seems like a stretch given the current weather conditions across the Corn Belt. The USDA is also predicting 4.2 million fewer soybean and 250,000 fewer wheat acres. The greatest question with these predictions is where the 2 million acres of lost production on a whole has gone.

When it comes to spring weather, the most attention at the present time is on wheat. This centers on North Dakota, where heavier than normal snow cover is being reported. This alone is likely to delay spring wheat seeding, and the possibility of flooding will only make the situation worse. This follows a fall where winter wheat seedings were the lowest in the past 110 years. There is also a concern over what kind of a stand the winter wheat crop will be when it emerges, and how much production might be lost.

The reaction to this news is being tempered by ample world wheat supplies and how any production loss in the United States can easily be made up for by other sources.

While the focus in the U.S. market is on spring planting, in the global market this is on harvest, mainly in South America. The Brazilian soybean harvest is now 70 percent complete. Brazil is now the leading supplier of soybeans to the world market, even with a slightly less than expected crop size. Analysts in Brazil claim that drought has reduced the crop enough that exports will likely be affected as well. Some analysts believe Brazilian exports will be down 14 percent from a year ago.

When it comes to global soybean demand, all attention right now is on China. African Swine Fever has cut China’s pork production by 10 percent. China, which is the world’s largest soybean importer, will likely reduce its soybean demand as a result. This could actually benefit the United States, as China has turned to pork imports rather than soybeans for feeding. China has already come to the United States for pork needs, which is greatly benefiting that market. Some economists believe it could take up to two years for China’s pork production to get back to normal from the ASF outbreak.

This commentary is the sole opinion of Karl Setzer. 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, contact Karl Setzer at 800-858-3738, ext. 411, or at ksetzer@citizenselevator.com. You can also follow Karl on Twitter @ksetzergrains.