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Could futures for new-crop corn sink to $4 in market?
Trade continues to look at new-crop stocks to use and make price projections. The stocks-to-use ratio on new-crop corn is currently 15.8 percent, which is far from a bullish amount. A ratio this large historically equates to futures of $4, which is not out of the question in today’s market.

Trade is well aware that trend yields are used in these projections, and actual corn yield has been well below that in the past few production seasons.

The stocks-to-use ratio on new-crop soybeans is much more favorable for prices. This ratio is currently projected at 5.5 percent, a historically tight level.

This stocks ratio has been associated with $13 soybean futures. While this is below today’s market, it is still a highly favorable price level compared to that of new-crop corn.

These stocks-to-use ratios will be affected by many influences this year, though, and will change several times. One of the most dominating factors for price discovery will be weather.

Over the past several weeks we have seen drought improvement in the United States, mainly in the Eastern Corn Belt. Climatologists claim it will still take a considerable amount of time to rebuild the nation’s soil moisture, as much as two years in some regions.
Old-crop U.S. corn continues to see significant pressure in the world market. Global corn importers can currently go to Ukraine for corn at a $1.65 discount to the United States. Argentina is also putting corn into the global market at a sharp discount to the United States.

This price differential has not only cut U.S. corn exports, but caused an increase in corn import interest, as well. Not only is U.S. corn struggling to build global demand, but domestic demand. While feed demand has been solid this year, it is doubtful it can compensate for losses in ethanol manufacturing.

In 2011 the U.S. ethanol industry consumed 5 billion bushels of corn. Since then profit margins have collapsed in the industry, and many plants have closed or slowed manufacturing. At today’s consumption rate, the industry may only use 3.9 billion bushels of corn this year.

Old-crop soybean demand is much higher, both domestically and globally. Soybean exports are already approaching 100 percent of the year’s total estimates with six months left to go.

Soybean crush is also elevated from estimates, with yearly crushings approaching 750 million bushels. This is 10 percent ahead of last year’s crush volume at this time, while annual crush is forecast to decline 5 percent.

The United States is starting to see more pressure in the global soybean market. The majority of this is coming from harvest activity in South America, as Brazil is reporting its soybean harvest at 30 percent complete.

This is a point where exports tend to increase as domestic storage is back at an adequate level. The focus will now be more on logistics to see is Brazil can load these soybeans in a timely manner, or if the United States still needs to make exports.
The precipitation events that have moved across the United States in past weeks have started to improve soil conditions. While most of this precipitation has fallen in the form of snow, there has been rain in the systems.

The precipitation events may not be enough to greatly improve dry soils, but they may prevent conditions from getting worse. As a result, trade is taking this as an indication there is adequate risk premium in futures values, for now.

Karl Setzer is a commodity trading advisor/market analyst at Maxyield Cooperative. His commentary and market analysis is available daily on radio, in newsprint and on the Internet at www.maxyieldcooperative.com

The opinions and views in this commentary are solely those of Karl Setzer. Data used for this commentary obtained from various sources are 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.
3/6/2013