Commodity Demand Remains Low
Corn sales remain well below expectations for the marketing year as buyers continue to take their business to Brazil, Argentina, and Ukraine. The main reason for this is price as the US is above the global market on corn offers. In the spot market the price difference is $11.00 per metric ton, with the spread in deferred months reaching $18.00 per metric ton. Until this spread narrows, the US may struggle to gain much of the market share on corn trade.
While much of the interest on export sales recently has been on slow corn demand, trade is starting to focus on soybeans as well. Marketing year to date soybean sales currently stand at 678 million bu compared to last year’s 774 million bu. Sales to buyers other than China only total 469 million bu versus 737 million bu last year. The current sales volume on soybeans is also the lowest in the past six years. It is not out of the question we could see adjustments to total demand if soybean sales start to fall short of expectations.
One factor trade is closely monitoring for US sales is timing. We are on the edge of when demand starts to pick up on both corn and soybeans. History shows us that peak demand on US corn in the global market tends to come between December and March. For soybeans the highest demand is normally from November through March. It is not out of the question we could see the USDA hold off on adjusting demand until we get closer to the end of these windows.
There are also hopes in the market that South American corn exports will soon be slowing and demand for US corn will rise. While seasonally this is possible, US corn exports may not increase as much as hoped for. Ukraine has produced a large corn crop and is just starting their export program as well. This will again bring buying interest back to price, where the US remains the highest in the global market.
Even without a trade agreement, China continues to book US commodities. Last week China booked 760,000 metric tons of US soybeans, which was 61% of all sales. For the calendar year China has booked 8 million metric tons of US soybeans as trade negotiations have taken place. This compares to last year’s 648,000 metric tons at the height of the trade war. Chinese bookings are still well below the 18.6 mmt that had been booked up to this point in 2017 which was prior to the trade war beginning.
The unknown with Brazilian soybean sales is how long they may last. According to data from MidCo commodities, Brazilian farmers have roughly 10% of their soybeans left to market. At the same time, China has little soybean coverage from December forward. This could easily shift demand to the US, at least until the South American export season starts in late February or March.
As harvest progresses across the Corn Belt, we are receiving more yield data. For soybeans, most reports indicate yields are as expected and down from last year. Corn reports are a little more optimistic. According to many sources, corn yields are also better than expected, but are closer to average than expected. In parts of the Western Belt we are even hearing of better than last year’s corn yields, with some being the best ever. While yields are forecast to decrease as harvest moves into regions with more stressful growing conditions, these reports do give credibility to the current USDA yield estimate.
On factor that is consistent across the Corn Belt is that the corn crop is not drying down as much as hoped. While this may not impact final yield, the need for the crop to be dried artificially will lower potential returns. Drying will also increase handling the crop, increasing the chance of damage developing, as well as shrink. This has many producers leaving their corn in the field longer than initially intended to see if moisture does drop naturally.
A factor with this year’s corn crop that is receiving more attention is quality, mainly test weight. Reports of low test weights on corn are building, mainly in areas where the growing season came to an early end. Terminals have even went as far as setting a minimum on corn test weight and turning away bushels that are substandard. The question now is if this will impact our export demand as the marketing year progresses, and possibly what it could mean for domestic demand as well.
Even though harvest is taking place, we have seen little impact on interior basis so far. The main reason we have not seen the weaker basis that tends to come with harvest is that farmers are filling on farm storage first. Many claim the only bushels that will move to commercial terminals is either what they cannot hold at the end of harvest or what was forward contracted. Several farmers claim they will be able to hold this year’s entire production due to lower yields. In some areas we have actually seen basis improve as expected bushels are not being delivered.
This commentary is the sole opinion of Karl Setzer, Senior Commodity Risk Analyst for AgriVisor, LLC. This is intended for informational purposes only and not to be used for specific trading recommendations. The information used to generate this commentary is gathered from a variety of sources believed to be accurate. If you have any questions or would like additional market information, feel free to send an e-mail to email@example.com.