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KARL SETZER
July 6, 2018

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Acreage changes from the March intentions were close to expectations on soybeans and slightly larger on the grains. Soybean plantings this year are now forecast at 89.6 million acres, a 575,000 increase from March. Corn plantings are now forecast at 89.1 million, a 1.1 million increase from March. Wheat acres are now projected at 47.8 million, a 482,000 increase.

These acres will give the United States crop sizes of 14.23 billion bu on corn, 4.3 billion bu on soybeans and 1.85 billion bu of wheat using current yield estimates.

The quarterly stocks data contained even fewer surprises for trade. As of June 1st the United States was holding 5.3 billion bu of corn, 1.22 billion bu of soybeans, and 1.1 billion bu of wheat. Compared to last year these were minimal changes on the grains, with corn gaining 7 million bu and wheat reserves down 8 million bu. Soybean stocks were the big changer, with 256 million bu more in reserve than a year ago.

We are seeing more yield estimates released, which is not uncommon at this point of the year. As always these are being based on crop conditions, which tends to be highly inaccurate at this stage of the year. The most talked about right now are on corn, where some analysts have yield at 182 bushels per acre, which is also what futures are reflecting. While this is possible, there is plenty of growing season ahead of us, and expectations will change several times.

The real question when it comes to corn yield is what is needed to satisfy demand. At the present time a U.S. corn yield of 178 bushels per acre would satisfy demand without drawing on reserves. Even if yield is slightly below this the United States has enough corn in reserve to maintain an adequate carryover. When comparing this year to similar ones in history, at this time a corn yield of 178 bushels per acre for the U.S. is not out of the question.

We are also at a stage of the year where more interest is placed on country movement of farm stored bushels. Typically we see farm movement once planting wraps up and crops are developing. The better the crops look, the more movement that takes place. This is a barometer than many analyst use to try and predict crop potential. While not scientific by any means, historically it can be an accurate indicator.

Weather conditions across the United States remain mostly favorable, but trade is aware that conditions can change quickly. The year that is most remembered for this is 2012. That year the crops started out with high ratings and then eroded as the growing season progressed. This was more of a case for corn, where late June and July weather devastated yield potential.

The United States is starting to gain some non-traditional corn demand in the global market. This is the result of reduced production in other corn producing countries, with Brazil being the one most talked about. Another is Ukraine though, where grain exports are going to be down 4 million metric tons from a year ago. While some of this demand will be satisfied with alternative grains, mainly for feed, corn usage is still expected to grow.

A result of this elevated corn demand is more interest on new crop stocks to use in the United States. At the present time this is projected at 10.8 percent. If demand grows as much as some analysts believe, this could easily drop to 10 percent and possibly below. If correct, this would put stocks to use at levels not seen since the 2013/14 marketing year.

The recent trade disruptions with China continue to impact commodity values. Much of this was the result of tariffs being proposed, but history shows us China has set up several hurdles for U.S. imports in recent years. For soybeans this started with a reduction in allowed foreign material from 2 percent to just 1 percent, yet China was only willing to pay the value of higher FM soybeans. This same issue has taken place with Chinese meat imports and how much stricter testing has been taking place.

It is believed that both of these are being done to negotiate price rather than worries over a quality issue.

Trade continues to focus on one simple factor at this time of year; that being if crops are getting larger or smaller. Right now it appears as though trade believes yield potential is increasing. This is why we have not seen much buying interest in futures, even though indications show we should be trading at higher values. Until this mindset changes it will be hard to have a sustained market rally.

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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