Trade is trying to determine what yields will be required to satisfy projected demand. Several analysts claim corn yield has to top 160 bushels per acre for a national average to help the United States build its reserves.

Others claim corn yield can be as low as 154 bushels per acre and we will still have adequate carryout, even though it will be at a minimal level. These numbers may both be too high though given our recent drop in old crop corn demand.

The needed production on soybeans is a more critical number. The U.S. needs no fewer than a 43 bushels per-acre average to satisfy demand, and the USDA is projecting yield at 43.4 bushels.
What is concerning is that the USDA has lowered soybean yield in eight of the past nine years from the July to the August production reports. Trade remembers 2008, when soybean yield averaged 39.7 bushels per acre, which would eliminate all soybean carryout.
For the first time in history ethanol demand is projected to top feed usage in corn, according to the latest supply and demand report from the USDA. This may not be accurate though, as better processing has allowed the industry to use less corn to make more product.

It is also possible we will see a dip in ethanol manufacturing if ethanol subsidies are removed. The combination of these two factors could easily give us greater ending stocks of corn than currently projected.

China’s government has announced it will begin subsidizing hog producers in an effort to provide the country with food safety. For every sow Chinese farmers breed to increase the country’s hog count, farmers will be paid $15.50.

Chinese consumers are now paying 57 percent more for pork than a year ago, and the country is in concern of what food inflation will do to its economy. If this does in fact elevate China’s pig population, it will also increase its demand for feed grains.
It is becoming more likely the U.S. will not see an early harvest this year, and in fact, harvest may actually be later than normal. This is especially the case in northern regions of the Corn Belt where planting was delayed.

One result of this is cash grain inventories may be stretched thin ahead of new crop deliveries, causing localized grain shortages. Another one that could have more of an impact on the crops is they may not be fully mature by normal frost dates this fall.
While some of the weather risk premium has been removed from the futures market recently, it is possible we could see it filter back in. July went into the record books as one of the top 10 warmest since 1895.

History indicates in these previous years, nine Julys were followed by hot August temperatures, as well. This means there is still plenty of time for damage to be done to developing crops.
The U.S. has seen a decline in demand for its grain offerings in the world market, primarily corn. The primary reason for this is the recent rally we have seen in corn futures, which put U.S. corn values well above other sources.

The U.S. dollar has increased in value at the same time, making our corn even more expensive for potential buyers. As a result, buyers have opted to take corn and cheaper feed wheat from the Black Sea, especially those from Asia.

We may soon see increased competition in the world market for corn exports. Argentina has increased its corn production and will now have an estimated 700 million bushels to use for exports by 2012.

The buyer getting the most attention is China, as it is showing interest in Argentine corn because of its lower value. The only obstacle with China buying corn from Argentina is safety certificates, which China will fast-track for approval if needed.

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.