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KARL SETZER
May 11, 2018

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The official soybean crush data for March has been released, and shows promising numbers for the soy complex. Soybean crush during March was an all-time monthly record at 182.2 million bu, 30.8 million more than the same month in 2017. Cumulative crush for the first half of the marketing year now stands at 1.19 billion bu, 4.4 percent more than a year ago. If this pace continues it will add 120 million bu of soybean demand to current projections. High crush returns and the short soybean crop in Argentina are the primary reasons for the elevated crush pace.

There are two well defined sides starting to develop in the world soy complex. World soybean ending stocks are now forecast at 90.8 million metric tons. While this has in fact decreased steadily in recent months, it is still the second highest level in history and a 12.5 million metric tons increase in just two years. What is more of an issue for the market is where the stocks are being held than actual inventory.

There are also thoughts that any decline in world reserves is temporary. Field scouts in the United States claim recent weather will limit the number of spring wheat acres that will get planted and these will likely end up as soybean fields. Brazilian farmers are able to lock in record soybean values at this time, which will likely lead to acreage expansion in that country as well. Even with elevated global demand this will likely allow soybean stocks to build.

Delays to spring wheat planting are becoming more of a market factor. In the March intentions report spring wheat acres were forecast to increase 10 percent this year. Given the delays we have seen to planting in that region, it is now thought at least a portion of these acres will be seeded to other crops, mainly soybeans. Historically when planting is as slow as this year spring wheat acres decline from 8 to 14 percent rather than increase.

Brazilian yields are becoming more of a point of interest for the market. Average yields in the country this year are estimated at 85 bushels per acre on corn and 48.7 bushels per acre for soybeans. These compare to last year's yields of 88.6 bushels on corn and 49.9 bushels on soybeans. Given recent upgrades to farming practices and better use of today's genetics, these yields will likely keep growing, especially on corn.

Harvest is still taking place in South America but we are already seeing interest placed on next year's potential crop sizes. At the present time soybeans in Brazil have an equivalent value of $17.00 per bushel. This is not just from futures, but also from currency exchange rates. Not only will this prevent acres from going unplanted, but will likely bring more acres into production next year.

Trade is also showing more interest in Chinese corn production. Chinese officials are estimating this year's corn crop at 223 million metric tons, up from last year's 216 million metric tons crop. What trade is most interested in, however, are reports that China's corn reserves are nearly as great as their yearly production. Even though this is more than enough corn to satisfy demand, China may still need to make corn imports for blending purposes.

There is another factor that could easily lead to Chinese corn imports, that being logistics. Much of China's corn is being held in remote regions and not very close to processors. In many cases it is less costly to make imports rather than pay to have corn moved, as some of this needs to be done with ships. Above all, the real question with stored corn in China is quality and what the corn can be used for.

U.S. sorghum vessels that were destined for China have been diverted following the implementation of high tariffs on that commodity. The good news from this is that the vessels were re-sold to Japan. This was done at a sharp discount to the initial selling price though, and will save the Japanese buyers an estimated $6 million per vessel. The real negative side of this is how much corn demand it will displace.

Corn may also see pressure in the global market from sugar. Sugar values have dropped considerably in recent weeks and now stand at 14 cents per pound. There are thoughts sugar will decline to 9 cents per pound before it bottoms out. With sugar being this cheap any plant that can process it into ethanol over corn will do so.

Trade is keeping a close eye on U.S. processors. This is the time of year when many processors, mainly ethanol and soy crushers, start to take their annual down-time for maintenance. It is not out of the question this could be delayed this year or put off altogether as processors try to capture as much of the current profit margins as they can. This is especially the case for soy crushers where crush margins are holding at a positive $2.00/bushel.

Karl Setzer is a commodity trading advisor/market analyst based in the West Bend office of MaxYield Cooperative. He can be reached at (800) 383-0003.

The opinions and views in this commentary are solely those of Karl Setzer. Data used for this commentary obtained from various sources believed to be accurate. This commentary is intended for informational purposes only and is not intended for developing specific commodity trading strategies. Any and all risk involved with commodity trading should be determined before establishing a futures position.

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