By Karl Setzer

Even with high priced commodity values we have yet to see a significant decline in demand. This is especially the case in the interior market, where favorable processing margins are keeping end user demand elevated. Typically, we see commodity demand wane when the markets rally, but high returns are preventing this from happening. In fact, several reports are surfacing of buyers posting incentives to entice deliveries, which has pushed cash corn above the $8 mark in some regions. Consumer demand is not backing down either, which is also favoring returns, primarily in the livestock sector.

Not only is the U.S. ethanol industry seeing elevated domestic consumption but stands a good chance of elevated exports as well. The United States already exports a large volume of ethanol. Right now, the price spread between the United States and its leading competitor, Brazil, favors the United States by 60 cents per gallon. This spread will likely narrow when the Safrinha crop becomes available in Brazil this summer, but the United States does stand a chance of elevated exports from now until then.

Even with elevated export sales, trade is starting to show some concern over actual loadings. With 19 weeks left in the marketing year, corn loadings are at 50 percent of the USDA yearly forecast. This raises the bar for some lofty needs in the next several weeks to prevent either late season cancellations or a rolling of purchases from old crop to new next year. There is less concern on the soybeans as inspections are at 78 percent of the yearly estimated total, but this is still 9 percent behind last year’s pace.

Another concern in the market right now is the spread between the United States and other commodity suppliers in the global market, especially on corn. At the present time corn out of Argentina is being offered at a $1.25 per bushel discount to the United States for May and June shipment. Corn out of Brazil is at a 30 cents discount to the United States for May and a 70 cents discount for June. South American corn becomes more expensive after June though, which is when the United States is expected to see elevated export interest.

One importer that has backed away from the global market is China. In March, Chinese soybean imports declined by 18 percent as the country used more of its domestic reserves to avoid COVID contamination. China also reduced its meat imports by 42 percent in March as it tried to consume more domestic pork in an effort to support prices. There are thoughts this shift in demand has caused voids in government reserves though that much now be made up for with elevated purchases.

Not only has COVID affected commodity flow in China, but it could easily be an issue for the upcoming planting season. For one, China needs to get seed and fertilizer to areas of demand and this movement is being hindered by travel restrictions. Even where some of these have relaxed it will take several days of quarantine to move across boundaries where infections have been reported. Another issue is simply getting farm workers to where they are needed, and even finding ones who are willing to work right now is an obstacle.

Crop scouts in Brazil have started to leave their soybean production numbers unchanged given the near completion of harvest, but we are seeing alterations to the country’s corn production. The USDA projected Brazil’s corn crop at 116 million metric tons (mmt) in its latest production forecast. The attaché in Brazil is more optimistic and believes the crop will be closer to 118 mmt, which is 3 mmt larger than its previous forecast. The attaché believes Brazil’s corn yield has been lowered by dry conditions in some regions, but elevated plantings will more than make up for the losses. This will put total Brazilian corn production over 30 mmt larger than last year.

We are starting to see a difference in opinion forming over Ukraine balance sheets this coming year, especially on corn. There are thoughts Ukraine will still get 70 percent of its normal corn acres planted this year, even with an ongoing war taking place. If correct, this will not only allow Ukraine to produce enough corn to cover domestic consumption but have enough to still make exports. This will still leave a void in the global market that will need to be filled by other sources, with the United States and South America likely splitting the demand.

Trade is starting to more closely monitor long-range U.S. weather outlooks. The most interest is fall on the current La Nina weather pattern, especially after the statement by the Climate Prediction Center that there is a 59 percent chance this system will hold on through August. The CPC also believe there is a 50 percent chance the La Nina will still be a factor through fall. The initial reaction is this will again bring dry conditions to the U.S. Plains. While possible, the intensity of the La Nina is unknown, and that will determine how much its impact will be on production. Not all regions of the world are negatively impacted by a La Nina though, as the Australian wheat crop benefits from its effects.

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