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Analysts questioning corn, soy use, actual vs. expected
Market Analysis
How much corn is going to be used by the U.S. ethanol industry is being questioned. Ethanol margins have recently improved, and thoughts are it will increase the industry’s corn consumption.
This could have a significant impact on corn carryout this marketing year. If ethanol demand does not increase, it is unlikely total usage will meet the 4.5 billion bushels being predicted by the USDA.

Trade continues to see mixed opinions on feed use, too. Current usage data indicates yearly corn consumption for feed of 4.6 billion bushels. The USDA is only projecting a corn for feed number of 4.5 billion. While this is not a very large discrepancy, the fact it could mean the difference between rationing and adequate carryout is getting market attention.

Foreign corn use is being questioned as well. Many foreign countries are substituting wheat into feed rations to avoid the high cost of corn. One of the most notable is Japan, which is only using corn in 42 percent of its feed ration, down from 45 percent a year ago. Japan has also announced it will import a record amount of feed wheat in the upcoming year for feed use.

Soybean demand is also getting mixed signals, mainly from China. Chinese soybean imports so far this marketing year are down 3 million metric tons (mmts) from a year ago at this point. The USDA is using a 3.8 mmt increase in its yearly demand projections, though.

This is a difference of nearly 260 million bushels, which would have a significant impact on actual ending stocks.

The volume of corn the United States is going to import this marketing year is being debated. At present the USDA is projecting corn imports of 125 million bushels.

There are beliefs that actual corn imports may be even greater, given the price spread between domestic offerings and those out of South America. If correct, this may mean the 800 million-bushel export forecast the United States has is too high.

There are also thoughts that U.S. corn imports will be needed to satisfy domestic demand. While the United States may in fact plant a large corn crop this year, harvest timing will be critical. Any delay to harvest could leave a gap between old and new crop that will need to be filled with imports.

At the present time corn planting is not delayed a significant amount, but even the possibility is keeping an elevated amount of risk premium in the market.

Economists are becoming more concerned with the U.S. land market, and prices being paid for farmland. Their advice is that buyers need to be more cautious in today’s market, as current fundamentals do not support today’s elevated land values.
The main concern is that we are seeing commodity values soften, which will start to restrict cash flows. At the same time, economists do not expect a major collapse in land values – just that future growth may be limited.

Weather has now moved to the front of the market as a fundamental factor. Most long-range outlooks are calling for above-normal temperatures across the majority of the Corn Belt. This should help any remaining snow cover melt, and allow soils to warm quickly.

As a result, we are starting to see some risk premium leak out of new-crop values, especially after the larger than expected old-crop stocks report from the USDA.

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.
4/10/2013