Harvest across the United States is getting into its later stages. The question now is how good the crops were and what farmers will do with their newly harvested bushels. As for production, most reports from across the United States are that the crops were better than expected, especially in regions where drought stress was reported. This does not mean the crops are better than the USDA is projecting, but the general consensus in the market is they could be in line with current forecasts. Now that harvest is winding down this will put more market attention on demand, and this remains a negative factor for commodity values.

Farmers across the United States have been reluctant sellers of new crop bushels and the pressure we have seen in commodity values has done little to reverse this. It is widely expected than once farmers get their crops into storage it will be difficult to get them back out, especially if we do not see more favorable bids. This means basis will have to start being used more to encourage movement. This can easily open windows of marketing opportunity, but these are expected to be quite narrow and require immediate reaction. The next chance of significant market improvement will come from South American production reports and any loss in crop potential.

A major hindrance for U.S. corn and soybeans this marketing year has been demand. This is mainly from a loss of Chinese interest, which has been more noticeable in the soy complex. At the present time, the United States has 353 million bu fewer soybean sales on the books than a year ago. This is mainly from a loss of Chinese business as current Chinese bookings are down 246 million bu on the year. A much larger Brazilian soybean crop than the previous year has increased the country’s ability to make sales, and this is where our lost business has gone. U.S. soybeans are now competitive with Brazil, but in a matter of weeks, their next crop will start to be harvested and exported.

The same pressure is being seen on U.S. corn exports. U.S. corn sales have risen enough to meet last year’s pace. While this seems positive, cumulative U.S. corn exports are 270 million bu below trade expectations. The USDA is currently predicting an increase in corn exports from last year of 364 million bu. The greatest lag in exports is to China, where just 40 million bu in sales is being listed. The USDA is forecasting China’s corn demand to total 276 million bu. Elevated world corn production is the main reason for the lower demand for U.S. offers.

Given the rise in global corn production this may leave very little need for additional U.S. corn in the world market. China, the world’s leading corn importer, harvested a record crop this year and is taking measures to produce even more corn in the future, which will continue to pressure U.S. market share on a whole. Unlike soybeans, U.S. corn is not competitive with South America on price until early spring which is further lowering demand.

A news story that will impact the market for the future is the recent approval in China of more genetically modified corn varieties. There is now a total of 37 grain and 14 soybean GMO varieties that have been approved for use in China and commercial production will be quick to follow. It is a well-known fact that China wants to become more self-sufficient when it comes to commodities and these changes will make that more of a reality.

China actually plants more corn acres than the United States, but the current average corn yield in China is 100 bushels per acre. This is why the country must import 1 billion bu of corn per year to cover demand. If China can increase yields just 30 percent, which is highly likely, this displaces 300 million bu of world corn demand, and will greatly impact balance sheets.

While early we are already starting to see the U.S. markets position themselves for year end. This is mainly from the elevated involvement of managed money in all markets, including commodities. Many of these traders and groups will start to look at yearly profits and take these off the table to add to balance sheets. Given the fact funds are heavily short the market, especially the grains, this could elevate market values over the next few weeks. We are also approaching the U.S. holiday season when trade volumes tend to thin, which also generates elevated market volatility.

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