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Questions arising on projected new crop corn demand
 
By Karl Setzer
 
We continue to see a wide range of yield estimates on this year’s corn crop. These range from a low of 175 bushels per acre to a high of 183 bushels per acre. Crop sizes from these yields range from 14.78 billion bu (bbu) on the low side to a high of 15.46 bbu. Given the wide range of crop reports we continue to receive the possibility of either one of these scenarios is quite possible. What side of the range we come in on may be decided by weather over the next two weeks. 
We are starting to see just as many questions arise on projected new crop corn demand, especially exports. The current new crop export program is off to a record high start. Even so, the USDA is projecting new crop exports will decline 350 million bu (mbu) from this year. This seems unrealistic, especially with the smaller corn crop in Brazil this year that will likely elevate US exports. Next year’s corn production is forecast to rebound in Brazil, but even so this leaves a void in the global market. 
The uncertainty on new crop corn demand comes from elevated production in other regions of the globe, mainly Ukraine. Ukraine grain production is going to be considerably higher than a year ago and thoughts are the country will have 12 million metric tons (mmt) more for export as well. A larger corn crop forecast for China is also tempering thoughts of elevated US corn exports. 
Trade is starting to show more interest in the new crop stocks to use projections. In the latest USDA report new crop stocks to use was projected at 9.2% on corn and 3.5% on soybeans. Given the tighter old crop reserves than expected in the quarterly stocks and lower plantings totals these ratios may tighten in future balance sheets. Given the fact we are already at rationing levels this will continue to give us price support. 
We are also seeing more interest in how the global market reacts to these tight stocks to use forecasts. Analysts believe that if the global market is concerned with tight ending stocks, they will want to book coverage as soon as possible before values rally. The United States already has record new crop sales on the books however, so a portion of this may have already happened. The most interest in this scenario is on China who is known for basing purchases off values as much as need. 
Trade is keeping a close eye on China’s soybean buying interest for another reason. Crush margins have started to improve in China, yet their buying has been slow. One reason for this is the large volume of soybeans the country already has booked from both the United States and South America. Even with elevated margins China has enough coverage they may not be able to take delivery of and process in a timely manner. Another reason for low Chinese buying is that even though they have improved, crush margins remain negative in the country. 
Consumer spending continues to be closely monitored by trade, especially in the livestock sector. Disposable per capita income in the United States is up 1% from last year. At the same time retail beef values are down 8% as US stocks have rebuilt following logistic issues caused by the Covid outbreak. While this is positive, trade is becoming more concerned with rising ethanol stocks, especially if consumer spending turns down and travel declines. 
Water levels continue to decline in South America. This is most noted in the Parana River in Argentina where water levels are the lowest in 77 years. Even with dredging this is hampering shipping out of the country. The next chance of improving this situation is this fall when the rainy season gets underway. 
There are some doubts being cast over when this year’s rainy season will begin in South America. Typically, this comes during October. We are seeing La Nina indicators strengthen though which may delay the start of the rainy season, same as it did last year. This caused the drought that severely cut production in Argentina and the Safrinha crop in Brazil. It is not out of the question that farmers in Brazil could delay active planting until rainfall predictions are more known. 
The ongoing drought conditions in the United States also remain a market factor. Even with recent rainfall a reported 26% of the main US soybean production region has been drier than normal over the past 90 days. This is the highest percentage in the past seven years. Field scouts in these regions claim what rains have fallen have come at opportune times though and benefited the soybean crop. 
RISK DISCLAIMER: The risk of loss in trading commodity futures and options is substantial. Before trading, you should carefully consider your financial position to determine if futures trading is appropriate. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results. The information contained in this report is believed to be reliable but is not guaranteed to accuracy or completeness by AgriVisor, LLC. This report is provided for informational purposes only and is not furnished for the purpose of, nor intended to be relied upon for specific trading in commodities herein named.  This is not independent research and is provided as a service.  As such, this is considered a solicitation. 
8/2/2021