By KARL SETZER
Market Analysis 

In a direct opposite of what trade was expecting, the USDA lowered the U.S. corn yield in its monthly production report. The average U.S. corn yield now stands at 173.4 bushels per acre and, while under estimates, will still give the United States a 14.4 billion-bushel crop.

Even with this decrease and a slight increase in demand for ethanol, the United States will still have 2 billion bushels of corn carryout, which is not a bullish number.

The changes to soybean balance sheets were even less dramatic. The national average soybean yield increased to 47.5 bushels per acre, which was enough to increase total crop size by 31 million bushels.

This was just enough to offset a 32 million-bushel increase in soybean demand. This left soybean carryout unchanged at 450 million bushels.

The global corn and soybean carryout numbers remain much larger than a year ago. Global corn reserves now stand at 192.9 million metric tons (mmts) for the year and soybeans are forecast to total 90.28 mmts, both considerably larger than a year ago. Even if we do see decreased domestic numbers in future balance sheets, these large global reserves could limit market reaction and price potential.

While trade has been focusing on yields recently, just as much attention should be on demand. This is especially the case with soybeans, where both exports and crush have been running ahead of yearly projections. Corn demand has been more in line with estimates, and actually slightly behind for exports and ethanol.

While we may see demand increase for both corn and soybeans, the volumes may need to be sizable to impact trade given current carryout estimates, especially on corn.

More interest should be placed on the U.S. soybean carryout. Analysts have reduced the size of Brazil’s soybean crop by 3 mmts. If all of this production loss would come to the United States in the form of export demand, it would cut U.S. ending stocks by 25 percent.

If crush would increase, we could easily see our current soybean carryout reduced by 50 percent. This would put ending stocks near 200 million bushels, which is far from a burdensome volume.

Concerns are being voiced over the quality of this year’s corn crop. Northern regions of the Corn Belt are reporting very low test weights, with some no greater than 45 pounds per bushel. We are also hearing reports of cracked kernels in some regions. Both of these are being credited to the frost that impacted the upper Corn Belt early this fall.

The real worry with this situation should be what impact it will have on corn demand. The United States is already the highest-priced source for corn in the global market. Buyers are going to be hesitant to book corn with a potential quality issue, especially at an elevated value. There are also fears over how corn quality will impact domestic usage, mainly in ethanol manufacturing.

While they haven’t made headlines recently, the United States is still suffering from interior logistic issues. Terminals are facing long delays in getting railcars and, in turn, struggling to get grain moved. This is being blamed on a lack of power units and crews being available to move cars.

This has caused some concern in the export market, as buyers are concerned with getting timely shipments if they make purchases.

Interior logistic issues are also impacting the value of dried distillers grains (DDGs), as ethanol plants are having a hard time moving the commodity into the supply line. The ceasing of exports to China has also impacted the DDGs market negatively.

We are seeing an increase in interior usage of DDGs to offset the high cost of soy meal in feed rations, but the cost of trucking is limiting how much the grain can rally.

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.