By Karl Setzer
Now that the planting season is winding down, more analysts are starting to release their own yield estimates. The USDA is using a trend yield of 179.5 bushels per acre in its balance sheets, but most private analysts believe this is too high. Drier than normal conditions are already thought to have trimmed yield potential, even though the crop is just emerging. Elevated plantings that will likely include less desirable acres will also drag the U.S. yield per acre lower. Analysts are more comfortable with the USDA soybean yield estimate of 50.8 bushels per acre as that crop is more influenced by late-season weather.
The real question is what analysts are predicting for total crop size. Analysts have started to increase planted acres given recent futures activity, and in turn, are also increasing harvested acres. Predictions are now for 85 to 86 million harvested acres of corn which are anticipated to give us a 15.2 billion bu crop. The average harvested soybean acreage figure is for 86.5 million acres and a crop size of 4.4 billion bu. There are also ideas that this soybean number may increase as current market conditions are favorable for double cropping following the winter wheat harvest.
We are starting to see more reductions to the Brazil corn crop, with some now claiming it will be no greater than 90 million metric tons (mmt). This would be a large 12 mmt reduction from last year’s corn production and greatly impact the global corn supply. If the crop is this small, it would create a void in the global corn market between 600-700 million bu. This would generate increased demand for not just U.S. corn, but for corn from all sources in the world market.
The drought that is currently taking place in Brazil is impacting more than corn production. We are now hearing of losses in other crops, including sugar cane. The combination of these losses is expected to lower ethanol production in Brazil by 24 percent this year from last. Even a portion of this loss is friendly for the United States as it will generate less competition in the global market and elevate demand for U.S. ethanol. It is not out of the question we could even see elevated Brazilian ethanol imports from this situation.
Chinese officials have announced they will likely scale back on their corn imports in the marketing year that starts this October. Officials are predicting 30 percent fewer corn imports in the 2021/22 marketing year as the country increases its domestic imports and also shifts to alternative grains, mainly for feed. Corn imports for 2021/22 are projected at 20 million metric tons (mmt) compared to 28 mmt this year.
China’s corn imports depend heavily upon the size of this year’s crop, which is expected to be a large 272 million metric tons (mmt) compared to last year’s 260 mmt. In order for this to happen we will need to see near perfect growing conditions in China. China is currently seeing drier than normal conditions in northern areas, and while not a major factor right now, they easily could be if conditions persist. Trade will put more interest on this and U.S. weather given the ongoing reductions to the Brazilian crop.
One commodity China has not slowed down on importing is soybeans. In the first four months of 2021 China has imported 17 percent more soybeans than the same period on 2020. China is also importing a tremendous amount of vegetable oil, with a year to year increase of 47.4 percent. There is no sign of China’s demand for these products to slow for the next several months, possibly years.
The high tax rates the Argentine government has on commodity exports is starting to affect not only sales, but production as well. Argentina currently taxes soybean exports at 33 percent, but only 30 percent on soy products, which is limiting whole soybean sales. Farmers in Argentina are also looking at raising alternative crops that carry a lower overall tax rate, including wheat and barley. Argentina is also predicting a record wheat crop this year, allowing it to provide alternative feed grains to the global market.
Concerns are starting to rise over the state of the U.S. economy. While indicators still point to a recovery, some factors show growth could slow. The main one of these is logistic issues across the United States and how gasoline supplies may be strained right at the start of the summer travel season. Even with easing travel restrictions this may limit travel and consumer spending. There are also concerns that interest rates may start to rise and also tighten spending from recent months.
The surge we have seen in commodity values this marketing year is being noted in the entire agricultural industry. For one, higher commodity values have caused land values to rise as well. Not only is this for land sales, but for rent as well. Equipment dealers across the United States are also reporting high sales since commodity values began their rally a year ago. This elevated spending is even being noted by farm retail stores. The question now is how these values and spending will react when markets correct.
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