CBOT weekly outlook: Higher prices don’t jibe with corn, soy production

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CNS Canada — Trade is starting to slow down for the holiday season at the Chicago Board of Trade, which has corn and soybean traders looking at the larger picture.

Scott Capinegro, a broker with Barrington Commodities at Barrington, Ill., believes prices for corn and soybeans are currently too high.

“(The world) continues to plant, plant, plant,” he said, adding “the world is flushed with grain and something has got to change.”

Despite that abundance in the world, Capinegro predicts there will be more corn grown in the U.S. in 2019 compared to this year.

In its world agriculture supply and demand estimates (WASDE), the U.S. Department of Agriculture estimated the country’s 2017-18 corn production to have been 14.604 billion bushels and predicted 2018-19 production to increase to 14.626 billion.

USDA estimated world corn production for this year was 1.076 billion tonnes and predicted almost 1.1 billion for 2018-19.

Capinegro explained increases in ethanol production will help alleviate the looming supply problem, as China moves to expand its ethanol use over the next few years.

In the U.S., the Trump administration is pushing to make E15 gasoline, which contains 15 per cent ethanol, more readily available. However, Capinegro said these moves will only help to an extent, as the popularity of electric vehicles continues to climb upward and eventually reduce demand for corn.

“That’s going to start taking away some usage of ethanol here,” he said.

Another factor contributing to overproduction, according to Capinegro, has been genetics which have made crops more resilient. Where adverse weather would have resulted in lower yields in previous years, crops are now better able to contend with bad conditions.

Capinegro said the South American soybean crop is expected to be pretty good and their harvest is likely to begin in about three weeks. USDA has projected Brazil’s 2018-19 soybean crop to top 122 million tonnes and Argentina’s at 55.5 million.

Capinegro said China agreed to purchase more U.S. soybeans, but their purchases haven’t had a major impact yet.

“We’re so far behind in sales with them. Even if they came in and bought 200 million (bushels), down the road into spring, we’re still with a carryout of 700 (million bushels),” he stated.

The 2018-19 U.S. soybean carryout was predicted to be 955 million bushels, according to USDA.

Capinegro said China has been trying to demonstrate good faith in resolving its trade war with the U.S. in buying more soybeans, corn and cattle. With a South American soybean crop soon available, he wondered where China will look to for its purchases.

“It will start being a battle of the prices — who’s the cheapest, and all that stuff.”

— Glen Hallick writes for Commodity News Service Canada, a Glacier FarmMedia company specializing in grain and commodity market reporting.

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