We are now at a stage where the focus in the market shifts from the old crop to new crop. In turn, this brings a change in marketing focus and the fundamentals that will impact futures.
It is a well-known fact that the U.S. stocks-to-use ratios on corn and soybeans will remain tight for the 2021-22 marketing year. In fact, these are already at rationing levels and may not rise above them for another marketing year if demand remains high and production does not increase. This outlook is starting to impact how farmers have looked at marketing their new crop inventory.
Last year, farmers were heavy sellers out of the field and had liquidated a large portion of their bushels within a few months of harvest ending. Many feel they were not able to take advantage of the winter market rally as a result, and this may prevent them from making heavy sales right at harvest. Given the carry that is building in the market, this may not be a bad decision this year, especially on corn.
Not only will price dictate how much selling we see at harvest, but so will available space versus crop sizes. On-farm storage continues to be built across the Corn Belt and this alone eases the need to move inventory right at harvest. If yields come in at lower levels, this will further reduce any urgency in making harvest time sales. If this practice is widespread, it may open windows of opportunity for quick ship sales, which can be highly attractive.
We may also see a shift in overall market structure this year, which could impact basis levels across the interior market. We have started to see more export demand for loadings out of the Pacific Northwest than the Gulf. This is mainly from lower shipping costs from the Pacific Northwest into the Asian market — where this country’s largest buyers are — than what shipping out of the Gulf costs. As a result, we are seeing more bushels flow to the Pacific Northwest by rail than to the Gulf on barge. This has started to generate better bids at rail facilities that can ship west than some U.S. barge loaders.
One point of pressure the United States is seeing this year, even with tight projected carryout, is the fact that global production is rising. High commodity values have encouraged expansion in South America for the upcoming year and when combined with a return to more normal weather it will elevate their production. Other countries are also reporting large crops, including China, Ukraine and Russia. This may ease some of the demand for U.S. commodities and cap value potential.