Continuous Corn, Soybean Demand Needed As Export Window Shrinks

Continuous Corn, Soybean Demand Needed As Export Window Shrinks

Weaker Dollar Fosters Higher Ag Exports in 2017 and a Trade Surplus Next Year-media-1

During Thursday’s day trade, soybeans reversed earlier losses and finished higher. However, they have closed lower most of the week.

According to Karl Setzer of AgriVisor, it’s tough to pinpoint one particular cause for the slide—there’s a lot of little factors that have been putting pressure on the soybean market.

“Domestically, we’re looking to August weather and the forecast for the first two weeks of August—you couldn’t ask for much better conditions with cool temperatures,” he said.

Despite China making 10 consecutive days of flash sales of soybeans, Setzer said the demand is still there. However, he’s looking at the long-term effect of those multiple flash sales.

“All of a sudden, that came to an end like you’d flip a switch,” he said. “All of these soybeans were for new crop, none for old crop. In the last balance sheets released in July, the USDA already increased their export forecast on new crop by 400 million bushels. Not only do we have to export everything we did this year, we have to see our soybeans and our demand increase.”

Setzer said that Thursday’s export sales report had 122 million bushels of new crop sales was “phenomenal,” but there are some traders that say it’s getting front loaded.

“Once that Brazilian crop comes available in December and January, all of a sudden we’re going to see all of our sales drop to nothing because China really isn’t shopping for much past that,” he added. “That’s why we’re really struggling with soybeans—we need to see this demand continue. We want to see some bookings for March, April, May. Without them, it’s putting a cap on our market.”

Earlier in the week, some firms released their estimates of the upcoming South American soybean crop. RaboBank is expecting a 3 percent increase in soybean acres, and others are coming out at 5 percent.

“There’s talk of a 130 to 132 million metric ton crop next year,” said Setzer. “The trade is looking at [an additional] 12 million metric tons of soybeans that Brazil can put out. That’s about a month or two months more pressure the U.S. will see a year from now. This window for the US. To make big export sales is closing and it’s getting narrower year after year. When that happens, it’s tough for soybeans to rally.”

The U.S. saw a nearly 2 million metric ton flash sale of corn to China on Thursday. The corn markets closing a fraction of a cent higher at the end of the session. Corn has dropped from it’s high, and Setzer said that since there’s a lot of negatively priced corn, it might be tough to see a rally since the export picture is similar to soybeans.

“Corn exports are expected to increase 375 million bushels from old crop to new crop,” he said. “Total corn demand is expected to be up 990 million bushels. We have to get that demand to build, and we have to surpass what USDA is predicting—that becomes more difficult as we move forward.”

Setzer said we need to see multiple flash sales of corn because there’s talk of seeing a 182 to 183 bushel per acre yield nationally.

“That’s up about five bushels per acre from what USDA is using in their balance sheets, so the size of a U.S. crop is getting bigger,” he said. If we don’t see this new demand, we’re back into a debacle where [we’re trying to figure out] what are we going to do with the corn we produced.”

With the August soybean contract set to expire, there’s a transition happening between old crop and new crop. Setzer talks more about this transition in his full comments above.