After two days of fund positioning and balancing, markets started to consolidate in the overnight session. The impact of the March USDA reports is wearing off and traders are back to searching for a fresh story to keep the market moving. We are hearing more concerns over the future of US exports given the latest developments between the US and Mexico. Not only could this cut US grain sales, but meats and other products as well. Our export picture is becoming mixed as barge movement is being hampered by high water levels on interior river systems. A growing concern in the market is that at the current time, nearly all commodities are below break even for many producers.
While losses were pared in yesterday’s session, the corn complex is still facing negative pressure. Given current acreage estimates the US is no longer in need of seeing record yields to maintain an adequate carryout. In fact, some private analysts are now predicting a new crop corn carryover of 2.4 billion bu, nearly 500 million bu more than this year. Improved weather conditions have also increased the size of the Brazilian crop by 5 million metric tons and the Argentine crop by 2 million metric tons.
The soy complex has stabilized as trade starts to weigh the possibility of fewer planted acres this coming year. The reality is this does not make the soy complex bullish, it simply makes it less bearish. We have seen soybean sales announced in the past two days, but nothing that would alter balance sheets. The US remains uncompetitive with Brazil in the export market which is hindering our sales. The cumulative US crush is running 6% ahead of projections, but at 48 million bu, this will not add a lot to our demand base. This is especially the case with exports running from 250 to 300million bu on the short side.
Wheat futures are posting solid losses today as funds are adding to their short position. US wheat has eroded to a point where it is the most affordable in the world market. This is in part from Black Sea wheat rallying to an uncompetitive level. Even with this advantage wheat demand is poor, which is weighing on futures more than anything. The USDA is forecasting lower wheat feeding in the US this year, but a higher global volume, which is still positive. The initial winter wheat crop rating was 56% Good/Excellent, which is better than many analysts had expected.
This commentary is the sole opinion of Karl Setzer. 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 contact Karl Setzer at 800.858.3738, extension 411, or at firstname.lastname@example.org . You can also follow Karl on twitter; @ksetzergrains