It seems hard to believe, but in as few as eight weeks, we could see early planting across the United States. One of the greatest concerns heading into this year’s season is the ongoing drought in the Plains and Midwest.

Nearly every part of this entire region is suffering from drought, with most being in the “exceptional drought” category. If we do not see these conditions remedied soon, it could easily impact what is planted for new-crop acres.

One region of greatest concern is in Nebraska. The state has suffered from a multiple-year drought, and it is starting to affect irrigation needs. Nebraskan officials are going to restrict certain parts of the state to 10 inches of irrigation over 12 weeks this year, compared to a normal 18 inches of water. It is believed this will impact production on up to 6 million acres of Nebraska farmland.

Trade is starting to look forward to the December grain stocks report that will be released on Jan. 11. Trade believes that on Dec. 1 the United States had 8.3 billion bushels of corn in storage, 14 percent fewer than a year ago.

The real question is where this grain is being held. Most analysts believe farmers are holding a substantial amount of this corn, with off-farm stored corn thought to be down 60 percent from a year ago.

Similar estimates are being made on stored soybeans. Trade predictions indicate stored soybeans currently total 1.96 billion bushels, 17 percent lower than last year.

The difference between corn and soybeans is that while farm stocks may be a little different than a year ago, off-farm inventory could be down 33 percent. This indicates the United States has already consumed a large portion of last year’s soybean crop.

One of the most debated topics in the market right now is what we may see for harvested acres on corn in the January production report. There is a legitimate possibility of the USDA lowering harvested acres on corn in this release. This is what happened in the previous drought years of 1983 and 1988.

Even just a slight decrease in harvested acres could have a significant impact on production, given this year’s tight stocks-to-use ratio.

Another factor that will be closely watched in upcoming supply and demand reports is Chinese soybean demand. China imported 4.16 million metric tons (mmt) of soybeans in November, down from the 5.7 mmt in November 2011. Over the last two months Chinese soybean imports are down 1.3 mmt on the year.

Analysts say this is just a temporary setback, though, and demand will spike prior to South America entering the world market with new crop supplies.

There is just as much uncertainty over China’s future corn needs. Chinese officials have pegged domestic corn production at 205.6 mmt this year, a 9.6 percent increase from a year ago. At the same time, it is believed China will increase corn needs a similar amount, meaning imports will still be needed.

China has indicated it will source this corn from the Black Sea market if possible, as not only is the corn cheaper than that from the United States, but it carries lower transit costs as well.

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.