By Karl Setzer

A topic the market keeps going back to is how much demand we may see at the end of the US old crop marketing year. When it comes to this debate all intertest shifts immediately to China as that country is the world’s leading commodity importer. Chinese officials report having nearly all of May’s soybean needs covered and over 50 percent of June needs. 

China is also thought to have a sizable amount of July soybeans on the books. This leaves August and September for US old crop sales. While the US may see more soybean demand at that time, purchases may be light if the US still holds a premium to South America in the global market. 

Trade is also trying to predict late marketing year US corn demand. There is speculation the United States will see an active export program at the end of the summer, but this is being heavily debated. Even with drought losses and added domestic demand the Safrinha crop in Brazil will be considerably larger than last year and allow for elevated exports. Argentine farmers also planted more late-season corn than normal which will be available for export prior to the US harvest. The combination of these factors may hinder US sales. 

When it comes to US exports more interest is starting to be placed on beef and pork. This comes on the heels of the Covid restrictions that have cut into Chinese demand, who is also the world’s leading importer of those products. Chinese pork imports in the month of March were down 70 percent from last year and there are thoughts yearly imports could drop as much as 30 percent. Australia reports its beef exports to China have declined 10 percent from the start of Covid restrictions as well. The question in the market now is when these restrictions will be lifted, and demand will return. 

We continue to see delays to the US planting pace from the slow start to the season. The main reason for these delays was weather as wet fields kept farmers idled. Cold temperatures also delayed the start of corn planting in parts of the US. The immediate thought was this would cause corn acres to shift to soybeans. 

While this is possible, it is also likely that many farmers simply waited for favorable planting conditions, figuring that any yield drag from delays would cause less economic loss than replants would. This may keep acres from shifting away from corn, especially when combined with elevated new crop values. 

Analysts continue to adjust their Brazilian corn production forecasts. Dry conditions continue to impact a large portion of the Brazilian Safrinha production area, with Mato Grosso reporting the driest span from April 1 to now in the past ten years. Some analysts have lowered Brazil total corn production to 107 million metric tons (mmt) with a few all the way down to 103 mmt. These compared to the latest USDA crop estimate of 116 mmt. Last year Brazil’s corn production totaled 87 mmt. 

Even with these reductions, corn out of Brazil is being offered at a 50 cent per bushel discount to corn out of the United States. Corn out of Argentina is even cheaper at a $1 per bushel discount to the US. Even with these price spreads the United States continues to sell corn though as the quality of the US corn is needed for blending purposes. This is especially on corn going into China where there are strict regulations. 

The recent increase in volatility has had little impact to the farmer sentiment on the market remains optimistic. This is mainly from thoughts the current elevated values we are seeing will last until we see carryout levels increase from their current tight volumes. One worry farmers are sharing is what they will see for input costs, especially on fertilizer. 

Basis volatility is starting to build across the United States. Soybean basis weakened during April but is now starting to firm, even though crush margins are softening. The interior market is finding more competition from the export side which is giving basis support. Corn basis is becoming highly volatile, with reports significant pushes paid for immediate ship deliveries in the Southern Plains, mainly into feedlots. Corn basis softens the further east you move across the US, with some buyers not even posting bids in the far east due to ample supplies. 

Weather forecast models indicate the current La Nina event will linger through summer. The chances of La Nina remaining intact are now at 60 percent. If correct, this heightens the chance of stress being placed on the US crops, especially in the western states. To see drought stress to the US Plains in a La Nina are not uncommon. The concern is if this spreads into the Western Corn Belt in a year where no yield loss can be tolerated. 

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