The corn numbers in the July USDA supply and demand report received mixed reactions in the market. Old crop corn ending stocks are now projected at 880 million bushels, 25 million under trade estimates, but 150 million above the June release.

The new crop carryout estimate is at 870 million bushels, 175 million above June’s prediction, but 130 million under estimates. The USDA increased the size of the corn crop, but also raised the amount of ethanol use by 100 million bushels to drop the carryout.

The soybean data were neutral for the market. Old crop soybean ending stocks are now pegged at 200 million bushels, up from the 180 million reported in June. The new crop ending stocks are estimated at 175 million bushels, which was 15 million under the previous estimate. The USDA reduced old crop soybean exports by 30 million bushels, but this build was erased by a decline in new crop acres.

The global data from the USDA report was negative for all grains. World corn stocks are expected to stand at 120.9 million metric tons at the end of the old crop marketing year, and new crop at 115 million, but well above previous estimates. World soybean stocks also increased to nearly 66 million metric tons on old crop and 62 million on new crop. These numbers indicate there will be stocks available for all buyers for the next two years.

One segment of the July report that seems to be getting overlooked is the USDA’s cash price forecast, as the corn value decreased 50 cents per bushel and the soybean average was cut $1 per bushel.

Trade may be overestimating future U.S. grain demand. The ethanol industry has been steadily increasing its consumption of U.S. corn, but that market is becoming oversaturated with product. We are also hearing that countries that used to import a large amount of grain are becoming more self-sufficient.
This slowing demand could signify the end of the recent bull run we have seen in commodities for the past several years.

Even if we do see a slowdown in demand growth, it does not necessarily mean commodities will collapse, however; even if we hold to current demand it means the United States will continue to need large crops to satisfy usage. The case can actually be made that if demand would slip a minimal amount, it would not be negative. The real concern would be if all demand would halt at once, which can happen in times of record market values.

The possible loss of the federal blender’s credit may have more of a negative impact on renewable fuels than economists wish to admit. According to a recent study conducted by the University of Missouri, the removal of ethanol subsidies and import tariffs would cause ethanol values to decline 7 percent. In turn, the study claims ethanol margins would decrease 20 percent. These losses may make it hard for plants to remain profitable, regardless of what is set for government mandates.

Grain storage capacity is increasing across the Corn Belt. At the start of 2011 the Corn Belt had the capacity to store 22.3 billion bushels of grain. Of this, 12.6 billion bushels were farm storage, and 9.7 billion were commercial storage. The primary reason for the sudden increase in grain storage facilities is more internal grain demand, mainly from the ethanol industry.

The state that has the most storage is Iowa, which is not that surprising as this is where the most grain is consumed. Iowa has the ability to store 2 billion bushels of grain on-farm and 1.4 billion off-farm.

The state that has increased its storage capacity the most is South Dakota, however, with a 21 percent growth over the past five years. Oklahoma has the least amount of grain storage, as most of that state’s grain is consumed as soon as it can be harvested.

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 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.