The September USDA stocks data contained little surprising news for trade. As of Sept. 1 the United States had 2.295 billion bushels of corn in storage. This was 60 million under estimates, but a large 558 million bushels more than a year ago.
Soybean stocks totaled 301 million bushels on Sept. 1, 37 million under estimates, but a 104 million-bushel increase on the year. Wheat reserves totaled 2.25 billion bushels, 20 million more than expectations, but a large 292 million-bushel reduction from last year.
What was just as important as the stocks numbers themselves was where the inventory was being held. The U.S. corn inventory was split, with 788 million bushels on-farm and 1.5 billion off-farm. Soybeans were divided between 213 million off-farm and 88 million on. The real question is who controls this inventory, though, and it appears most is still in farmers’ hands.
The USDA also revised its 2016 soybean production data in this report. It now says the United States produced 4.296 billion bushels of soybeans last year, a 10.6 million-bushel reduction from the number that has been used in balance sheets. This is mostly from a 1/10-bushel reduction in yield, to an even 52 bushels per acre.
Trade is heavily questioning the soybean production numbers being released in Brazil. There are analysts who are reducing Brazilian soybean production by 7 million metric tons (mmts) this year, as they believe growing conditions will be more normal.
At the same time, they claim Brazilian farmers will plant more acres of soybeans, making it the 11th straight year of expansion in soybean production. It is hard to imagine soybean production will drop that much if planted acres keep expanding.
Adding to this confusion are soybean export forecasts for Brazil. Even with a drop in production, analysts believe its soybean exports will increase this coming year. These are now estimated at 65 mmts, 1 million more than a year ago. The higher export projections are a result of buyers expected to pass the United States in favor of cheaper Brazilian offerings.
U.S. acreage for this coming year is becoming more of a market topic. The spread in futures this year is similar to where it was a year ago, when a sizable shift from corn to soybean production took place.
Last year corn acres decreased by 3.1 million from the previous year, and there are thoughts we could see another shift this year. Even half this amount would put soybean acres at 90 million, and give trade the indication of continued growth in soybean supplies.
There is another factor in determining acres, and one that is getting more notice. Soybeans tend to carry a lower cost of production than corn does. When combined with tighter margins, this could easily sway acres into soybean production. There are reports that lenders are persuading clients into soybean production for this same reason.
There are thoughts in the market that August weather was not as beneficial as initially thought. While some regions of the Corn Belt did in fact benefit from cooler temperatures and rains, not all received needed moisture.
September started out dry, which again stressed developing crops in some regions. Not only could this be a factor for yield, but for crop quality, especially oil content in soybeans.
The lack of rainfall is not just a concern for crop development, but also for transit issues. Low water levels on U.S. rivers continue to hamper barge movement as drafts have to be reduced. This also means barges can carry less inventory than normal. As a result, more inventory is being pushed into the rail market right ahead of the fall harvest season.
This issue could not have taken place at a worse time for the U.S. market. Harvest season is underway in the United States and commercial inventory will soon start to build. The quickest and easiest way to move this inventory into the export market is through barges. Now the interior market will need to rely on rail movement, which is not only more expensive, but less efficient.
The quality of U.S. corn and soybeans are coming into question. Higher-than-normal levels of toxins are being found in corn in Texas and Oklahoma, and there are concerns over what it could mean for corn as a feed grain.
The same situation developed in soybeans, where up to 400 barges are sitting in the Delta, and are unable to unload due to poor quality. There is little doubt this will start to affect demand and the value of commodities in the global market if it continues.
Economists are closely monitoring the U.S. commodity markets and the agricultural economy. Nearly all fundamentals on corn are the same as they were a year ago, including corn supply. The U.S. soybean supply is expected to increase by more than 30 percent this coming year.
The combination of these factors indicate we could easily see another year of lethargic, sideways trade ahead of us.
Karl Setzer is a commodity trading advisor/market analyst at MaxYield Cooperative. His commentary and market analysis is available daily on radio, in newsprint and on the Internet at www.maxyieldcooperative.com
The opinions and views in this commentary are solely those of Karl Setzer. Data used for this commentary obtained from various sources are believed to be accurate.