By Karl Setzer

 We are starting to see a shift in the commodity market from old crop to new crop which is only accelerated by the rapidly approaching harvest season. When this takes place, we see more interest on yields and demand, but there are several other changes that take place in the market at this time.

The biggest change in the market at this time of year is a change in focus from supply to demand. As U.S. inventories are replenished, we now need to see how much usage we may see. So far, we have seen elevated demand on both corn and soybeans, with new crop soybean sales at a record high. Corn demand has also been above normal but has trailed off in recent weeks. This is from the addition of Brazilian corn in the global market. Fortunately, this corn is being offered at a discount to the United States, so competition for sales has been less than normal.

Domestic demand remains very strong as well, and again, more so on soybeans. Crush margins remain very high, and processors want to capture as much of this as possible. Farmers across the Corn Belt have not been willing sellers in recent weeks though, which is forcing buyers to post abnormally strong basis levels to entice selling. Even with these incentives, farmers have been unwilling to make sales as they believe values will be even better in the future, especially if the U.S. soybean crop sees any losses to production. We are also seeing pushes for corn, but these are more limited as stocks of that grain are more plentiful.

Now is also the time when farmers start to determine how much new crop storage will be needed. It appears as though many farmers across the Corn Belt will fill their own storage facilities as much as possible and only bring bushels to town if they absolutely need to. Given the recent strong demand we have seen for corn and soybeans this is likely going to keep basis firm, even when we start to see harvest take place.

Even though harvest is about to begin across the United States, weather remains very much a factor in price discovery. Later planted crops still need moisture to finish out as stress now has been shown to impact crop quality, mainly test weight. A concern, however, is that we will start to see heavy rains and potential harvest delays. If this happens, the strength we have seen to basis will only be amplified. Trade will also monitor weather to see how much fall tillage can be completed this year. The more fall tillage we see, the more corn acres that normally follow. This would be welcomed by corn buyers, but at the same time, the United States will also need a large soybean crop again next year to help replenish reserves.

The high value of the U.S. dollar remains a factor in global trade. We have seen buyers pass on U.S. offers in recent weeks even on commodities we are highly competitive on, primarily corn. Brazilian corn is currently 25 cents per bushels under the United States, which is not a significant spread. When the currency valuation differences are factored in, this spread widens, however. As a result, many buyers are still passing on the United States if possible. The strong U.S. dollar is favoring import buying though, which could end being more of a market factor later in the year.

The commodity that is being the most impacted by the strong U.S. dollar right now is wheat. U.S. wheat demand tends to slip lower in times of high currency values. This is being verified by cumulative wheat sales to start the marketing year that are the lowest since 1990. One factor that is offsetting the strong U.S. dollar is the quality of the U.S. wheat crop. While the global wheat supply is adequate this year there are reports of low inventories of milling quality inventory, which the United States has.

When it comes to export demand, trade is placing heavy interest on soybeans. Current U.S. unshipped soybean commitments are record high at 761 million bu. There are mixed opinions on this rate of sales though, with some claiming this is a sign of active global demand that will cut into U.S. ending stocks. Others believe U.S. soybean sales are front-loaded and will drop off as buyers become covered. What will ultimately determine total demand will be the size of the South American soybean crop which will be better known next spring.

Another uncertainty in global trade is the larger Russian wheat production figure. Officials in Russia now claim this year’s wheat crop will likely total 95 million metric tons (mmt). The question on this is if this is totally on the Russia crop or if it includes land now occupied by Russia in Ukraine. If this total is partially the Ukraine crop it is distorting global production figures as some bushels are likely being counted twice.

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