Karl Setzer

Nearly all interest in the market right now is on the start of the U.S. corn and soybean harvest. Despite current discrepancies in yield potential, this will still add bushels to an already adequately supplied cash market. As a result, we are starting to see seasonal basis pressure build. The question now is how long this basis pressure will last. Many producers across the U.S. are indicating they will only sell what is absolutely needed this fall and may opt to pay for commercial storage rather than sell into a depressed market. If this is followed through on, it will limit our fall basis pressure, especially if yields start to fall.

One thing that is quickly becoming apparent with this year’s U.S. corn and soybean crops is high variability which is not that surprising given growing season weather patterns. Field reports are indicating variability in corn yields as high as 100 bushels per acre within a very narrow distance of each other. This spread is only expected to widen as harvest advances into more areas. So far, all soybean yields remain high but are expected to see the same spread as corn as harvest progresses.

One of the takeaways from the latest U.S. grain inventory report that may start to change the overall mindset of the market is how much demand increased from June through August this year from last. Over this span, corn usage was up 22 percent, soybeans increased 18 percent, and wheat was 11 percent greater. This elevated demand means the U.S. needs to produce larger crops to keep stocks to use from falling into rationing positions. This may be closer than thought, as current balance sheets indicate yield loss as little as 3 bushels of corn and 2 bushels of soybeans from current USDA predictions and we would be at that point.

With the U.S. harvest drawing to a close, more interest is starting to fall on the South American production season. Following one of the driest starts on record in Brazil, record fast soybean planting has taken place. Rains have fallen in Brazil and farmers now want to get planting wrapped up before additional rains fall. Soils do remain on the dry side in Brazil though, and this is generating risk buying in the futures market. Argentina is reporting mixed soil conditions and are also showing signs of ongoing stress.

The USDA unexpectedly lowered its average U.S. corn and soybean predictions this month and held demand mostly steady. This USDA trimmed the U.S. corn yield in the November balance sheet, taking it to 183.1 bushels per acre for the national average. This lowered the national crop size by 61 million bu to a total of 15.14 billion bu. No changes were made to projected corn demand despite U.S. export sales being 400 mbu ahead of last year’s pace and above the projected pace to meet current estimates.

Questions concern Harvest is winding down across the United States, and a question we are starting to hear more and more is “where is the grain?” Farmers across the Corn Belt have indicated they are not holding any more on-farm inventory than normal right now. This follows a quarterly stocks report from September that indicated large volumes of grain were held in farm bins. Commercial terminals are reporting mixed inventories, with some needing to build ground piles to take deliveries, while others claim they are not filling to capacity. Regardless of where the inventory is, buyers are showing more urgency in extending coverage and pushing basis to do so.

We are starting to see a shift in how trade is looking at global oilseed balance sheets. This follows two of the world’s oilseed producers reporting crop failure – these being the Black Sea and European Union. Indonesia is also reporting a drop in vegetable oil stocks. At the same time, we are seeing a build in world biodiesel demand, including in the United States. Even with a large soybean crop in the U.S. and projections for a big crop out of South America, this shift may bring a tightening in world vegetable oil supplies. It is also quite likely to bring the U.S. additional export trade.

The only real surprise in the December World Agricultural Supply and Demand Estimates was in U.S. corn balance sheets. Production data is not altered in the December update, which left the U.S. corn crop at 15.14 billion bu. We did see a couple sizable changes to corn demand that had a surprising impact on ending stocks.

Several Brazilian analysts have increased the country’s soybean production outlook recently, including the country’s main soybean crusher ABIOVE. ABIOVE is projecting a Brazilian soybean crop of 168.7 million metric tons this year. This is a 9.5 percent increase from last year’s crop. The firm is projecting a big jump in soybean exports, going from last year’s 98.3 mmt last year to 104.4 mmt this year. The group is also predicting soybean crush of 57 mmt this year, up from last year’s 54.5 mmt. The ABIOVE production figure is in line with other projections, but their demand is higher, mainly for exports.

One of the most negative factors for the US soy complex right now is the start of the Brazilian harvest.