There continues to be a wide variance in crop conditions being reported across the Corn Belt, especially on corn. Several field scouts claim to be finding tip-back in fields as well as scattered pollination issues.

At the same time, there are scouts reporting normal corn stands, and even some that are the best that have ever been seen. These differing reports are adding to an already volatile futures market.

Several analysts have projected a 150-bushel-per-acre corn yield for the United States, but few understand what this means for the corn market. A corn yield that low and current usage would drop new crop carryout to a minimal 465 million bushels.

Ending stocks this low would likely drive corn futures well into the $8 range. While this is definitely possible, corn values this high will choke off a significant amount of demand as well. There are already concerns the United States is becoming over-priced in the world grain market.

One of these indications is from China buying soybeans from Argentina for October/November delivery, which is when the United States normally dominates the world soybean market. Another is that feed grain importers can buy lower-quality wheat for $50 per ton less than U.S. corn. While the United States may need to ration grain demand this year, these numbers indicate this is already being done, and higher futures are not needed at this time.

The U.S. grain that may see the most pressure in the future is corn. There is a record amount of feed wheat in the Black Sea region that will likely make its way into the Asian market this year, displacing U.S. corn. Russian officials believe 70 percent of their wheat crop will only make feed quality because of excessive rainfall in recent weeks.

Not only is Russian feed wheat cheaper than U.S. corn, but it also carries a lower shipping cost for Asian buyers.

While most of this year’s drought talk has focused on the corn, the crop that may see the most impact is wheat. A large amount of this year’s wheat crop was affected by drought, and this will impact next year’s production as well.
Wheat producers in the southern United States are hesitant to plant any wheat until soil moisture increases, and time is starting to run out ahead of winter. This year’s poor wheat crop also means less revenue for wheat farmers to purchase inputs, and reduces the amount of seed wheat available for planting.

One of the greatest unknowns and most conflicting situations in the market surrounds the soybean complex. Over the past several weeks we have seen Chinese soybean demand slow to a minimal volume. This could give the world much larger soybean inventory at the end of the old crop year than previously expected. The majority of the interest is on South America, where soybean stocks on Sept. 1 may be 250 million bushels larger than last year.

While this seems bearish for the market, any negative reaction may be short-lived. Global soybean inventory one year from now is already projected to be down 180 million bushels, mainly from the smaller U.S. crop this year.

We are also starting to see more soybean demand on a whole. Soybean usage this year is running at a pace that will put it 15 million metric tons (mmt) greater than last year. In the future, soybean demand is forecast to increase at a rate of 13 million mmt per year.

Several analysts have reduced their estimates on U.S. crops recently, but other regions of the world have increased their production outlooks. The most notable of these is Ukraine, which raised its total grain production to 46.2 mmt, and much of this is corn and wheat.

This increased production should allow Ukraine to export 22 mmt of grain this year, compared to last year’s 12 mmt. These exports will help fill the void in the global market from any shortfall in U.S. production.

Demand for U.S. ethanol in the world market could easily increase in the next several months. This is from the fact Brazil is using more of its sugar as a food product rather than processing it into fuel. As a result, buyers who normally took ethanol from Brazil are now looking at the U.S. as a fuel source.
This increased demand could help reduce any financial loss from the elimination of federal subsidies, and also make foreign ethanol imports into the United States unlikely.

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.