Weekly Review of the Grain Trade
09.03.2010
By Karl Setzer, CTA
Friday, September 3rd, 2010
Exporters in Need of New Crop Grain
U.S. grain exporters are anxious for the nation’s corn harvest to gain momentum. This is because many are sitting on large volumes of poor quality old crop corn, and need new crop grain to blend with it before they can make sales. Corn harvest has taken place in the Delta region, but given the small amount of corn that is produced there it has had little impact on stocks. Louisiana for example only produces 72 million bu of corn, while Iowa is forecast to raise 2.3 billion bu this year.
This need for high quality corn has forced exporters to pay a premium for deliveries of number one grade grain. If a barge of corn can reach the highest quality grade of number one, it is carrying a 12 to 14 cents premium over number two corn. The greatest concern appears to be test weight, but molds and fungus are also issues of concern.
Exporters may have to wait for deliveries however, as producers seem unwilling to make sales at this time, a factor that could easily lead to more quality loss in grain already in storage.
As corn harvest progresses across the Corn Belt we are hearing of a vast difference in yields. Irrigated land is yielding quite well, with many producers claiming their crops will be record sized on those fields. Dry land corn is doing much less than expected though, with some fields be written off as a total loss. The greatest concern so far has been in Illinois where corn yields are running from 10 to 30 bushels per acre under last year’s.
The most uncertainty surrounding yield is on soybeans however. Several field scouts claim to be finding Sudden Death Syndrome in soybean fields. While this can severely reduce soybean yields, the fact scouts are also finding record pod counts are off-setting much of the negativity. Analysts believe that even with a slightly reduced yield this year’s soybean crop will still be more than enough to satisfy demand.
Another unknown is what will take place in the global wheat market. Russia had recently announced the country would halt all wheat exports until the end of the calendar year to better determine potential reserves. This ban has now been extended for a full year, lasting until the fall of 2011. At the same time Russian officials announced the country will not need grain imports, meaning production will still cover grain needs.
The positive side of this for the United States and other wheat producing countries is that Russia will not be a competitor in the global wheat market.
Right now is one of the most conflicting periods of the year in the commodity market. While much of the market’s attention is focused on harvest activity and yield reports, we are starting to see a shift towards demand. This has been most evident in corn, where thoughts of increased usage due to production shortfalls from the Black Sea are elevating futures values.
Demand is less supportive for soybeans, as analysts know South America still has a large volume of old crop grain to move.
The U.S.D.A. has increased its export revenue forecasts for the United States for both 2010 and 2011. For 2010 U.S. Ag exports are now estimated at $107.5 billion, up $3 billion from their previous estimate. The 2011 Ag exports are now projected at $113 billion, just below the record of $115.3 billion in 2008.
The only grain with a lower export forecast for 2011 is soybeans due to increased competition from South America.
For more information, you may contact Karl Setzer at 1-800-383-0003, extension 237, or e-mail at ksetzer@maxyieldcooperative.com.The opinions and views expressed in this commentary are solely those of Karl Setzer. Data used in writing 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. Please visit our Risk Disclosure Page for more information on commodity trading.
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