We are now at a stage of the growing season where some traders start to remove their risk premium. In many years once we get past the July 4 holiday, traders start to classify the crops as being “made.” This is especially the case for corn, as soybean yield is heavily determined by August weather. This is a psychological move though and may have less of an impact on the market this year due to the late planting season.
Trade will also start to receive forecasts into the later parts of the growing season, which can cause risk premium to be removed as well. We may see less of this removal this year though given the late planting season. Crops will need extra time to mature, and any indication of an early end to the growing season will undoubtedly receive a reaction in the market.
Weather remains a factor in U.S. price discovery which is not surprising, but one impact this year is worth noting. The excessive amount of moisture the U.S. has received has reportedly caused quality issues with wheat. Experts claim that quality will be low enough this year that we will likely see an increase in the amount of wheat being used as a feed grain. This is especially true if corn futures continue to rally and livestock values hold steady.
Before long we will start to see early yield reports out of the southern U.S., primarily on corn. While this corn is typically used for feed purposes, it does give trade an indication of yield potential. Given the high variability of corn conditions across the U.S. this year, these reports may have a muted impact on futures than in recent history.
Harvest on a whole will soon be more of a market topic. The obvious question will be on yield and how good or bad the crops are. This will have different impacts on the market from basis values to the need for storage to the quality of the crops. If the corn crop is as short as some analysts predict, we may see more willingness from buyers to push for coverage.
One of the most notable numbers in the latest supply-and-demand report was the reduction to U.S. corn production. While this was in fact greater than most analysts had expected at this time, the overall decrease to corn output of 1.35 billion bushels was not a surprise given planting and current weather conditions.
The reason this has not received more of a market reaction is that outside of the U.S., corn production is record-sized in many regions, mainly South America. Importers can easily shift buying interest to these sources for corn if the U.S. market rallies, which has already taken place in some cases. We have even seen an elevated rate of U.S. corn imports from this factor. It is not out of the question that any additional cuts to corn production will be equally met with reduced demand.
Another balance sheets figure that is raising questions is U.S. soybean production. The U.S. Department of Agriculture did not change soybean production in June balance sheets but has since stated they will likely make adjustments in the July release.
The question when it comes to soybean balance sheets is if we see an increase in acreage due to the decline in corn plantings. If even a small 2 million acres would find their way to soybean production from corn, it would add 100 million bushels of production given current yield forecasts. While this would be a minimal change in most years, at this point any increase in soybean production is not needed given current soybean reserves.
The USDA has released a rather optimistic demand projection figure for U.S. pork. The USDA predicts U.S. pork exports will increase 10% in 2019 from 2018. This is mainly from elevated demand into the Asian market as African Swine Fever continues to spread and hopes for elevated demand from Canada and Mexico. While this is possible, the U.S. will need to see incredible pork demand to finish out the year as exports through April were down 5% from the previous year.
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 email@example.com. You can also follow Karl on Twitter via @ksetzergrains.