A lot has changed in the grain markets over the past several weeks. We’ve seen the marketplace shift from a bearish sentiment to a semi-bullish sentiment. The shift started taking place a few weeks back when rumblings began to circulate through the trade about production loss in South America; the second corn crop in Brazil, which is also known as the safrinha corn crop, and the Argentine soybean crop. Corn and bean bulls started to have the upper hand in the market as the trade thought importers would turn back to the U.S. to fill the deficit left by South America.
Corn supplies have been very tight in Brazil for several months, and it has forced users in Brazil to rely on imports from other countries, such as Paraguay and Argentina. That pressure has been somewhat relieved now as harvest on the safrinha crop has begun and is currently estimated to be about 3% harvested according to the Mato Grosso Institute of Agricultural Economics. The supply shortage in Brazil has had an impact on the U.S. balance sheet and will continue to have an impact on the balance sheet. Currently, we are seeing importers turn to the U.S. for corn as we have ample supplies and are competitive in the world market through about August at this point. The supply and demand data released by the USDA this past Friday supported that idea as they increased 2015/2016 corn exports by 100 million bushels. The USDA also made adjustments to the projected exports for the 2016/2017 marketing year by increasing the estimate by 50 million bushels. The corn export forecast for 2016/2017 is currently 125 million bushels more than what is estimated for the current marketing year. The estimate for 2016/2017 could continue to grow depending on the severity of the safrinha corn crop. CONAB recently estimated a reduction in production of 2.9 million tons for the safrinha corn crop which will keep supplies tight as we head through 2016 and could lead to reduced corn exports.
The soybean market has been one of the main supporters in the commodity markets as futures reached over $11 in early June for the first time in nearly two years. Wet weather in Argentina has caused implications with harvest progress and has raised questions of concern over quality. This has brought some renewed export interest back to the U.S. for new business, as well as business that had been put on the books as optional origin between the U.S. and South America and is being nominated to the United States. Things are setting up for the U.S. to have an aggressive export program late this summer and throughout the fall as it doesn’t appear South America will have an export tail that drifts into the U.S. fall harvest like we experienced this past harvest. The increased export interest was also reflected in the supply and demand tables released by the USDA this past Friday as the 2015/2016 export estimate was increased by 20 million bushels and the 2016/2017 marketing year estimate was increased by 15 million bushels. An interesting figure is the 2016/2017 bean carryout. The estimate was reduced to 260 million bushels. A minor reduction in yield could create pretty big implications for the soybean market and could cause a lot of uneasiness in the market.
I suppose you are wondering what this information means to you and how it’s going to impact your marketing going forward. The message is simple. Export demand looks strong for corn and beans, both old crop and new crop and U.S. weather is starting to cause some concern for production reductions. The increases in exports made by the USDA in their supply and demand estimates along with a few other adjustments ultimately reduced carry outs for corn and beans in the current and next marketing year. If news regarding South American production continues to be disappointing, look for potential increases to the export estimates and additional support added to the market.
For now, the focal point of the market is no longer the export data. It has turned attention towards weather. A weather market can create a lot of volatility. We are early in the growing season, and there’s a lot to be seen yet, but the forecast for the next seven days is concerning. With temps in the 90’s over the next seven days and minimal chances of precipitation, it’s important to realize a couple of things. The first and most important thing to keep a close eye on is your health. Make sure you drink plenty of water and don’t overdo it. The other thing to realize is the stress it takes on your crop and the potential for top end yield loss.
It’s imperative that you manage your position as we head through this time of uncertainty. Take the potential yield loss and the length of the growing season remaining into consideration when pondering your next grain sale. Give some thought to how comfortable you are and what percent you are willing to be sold at this point in the game. Take a worst case scenario into consideration and don’t allow yourself to get oversold. As I said a little early, a weather market can create a lot of movement in the market, both to the upside and the downside. Our ProEdge group has a lot of different tools available to help you manage your risk. There are tools available to try and make the price on that earlier sale a little bit better, protect your downside, and tools that allow you to lay off some risk while keeping the upside potential open. Reach out to your Specialist to see what options are available and will be most beneficial to your operation.