One of the greatest contentions in the commodity market centers on whether grain supplies need to be rationed or not at present. Many economists claim that unless the United States rations more corn and soybeans, inventories will likely be depleted.

It is possible that enough rationing has already taken place to avoid this, though, as buyers have passed on several U.S. export offerings in recent weeks. The most talked about of these is China, where a negative crush margin on soybeans is cutting demand substantially.

The commodity demand that may be the most overestimated at present is on corn. While the U.S. did use a large volume of corn this past marketing year, future demand may not be as great. This is because of an increase in global corn inventory, which is 6 million metric tons (mmt) greater than a year ago at this time due to larger volume of crops in South America and Ukraine.

Competition from this corn in the world market could push U.S. new crop corn carryout to the 1 billion-bushel mark, even with reduced yields this year.

Some analysts do not believe the USDA is accounting for Distillers Dried Grain (DDG) use when balancing corn stocks, either. In the 2010-11 marketing year DDG use is expected to offset 1.2 billion bushels of corn use for feed. This is a 12 percent increase from the previous marketing year, and a result of increased ethanol production.

If the USDA has been off in its corn use estimates, it may show up in the Sept. 30 Quarterly Stocks report.

Another factor that will eventually impact corn stocks this year is the high levels of aflatoxin we are finding in regions that were affected by drought. Aflatoxin is a fungus that can kill livestock in high doses, and is commonly found in years with drought conditions during the growing season.

Normal aflatoxin levels are from 100-150 parts per billion (ppb), but this year the fungus level is as high as 1,000 ppb in affected areas. As a result of these high aflatoxin levels, many farmers are taking discounts of up to $1 per bushel on their corn, or being forced to destroy the crop altogether.

Grain production is expected to increase in the Black Sea region of the world this year, especially feed grains. The Black Sea region is now forecast to raise 12 mmt of feed grain, up from earlier estimates for 9 mmt. This is double last year’s 6 mmt of feed grain output. Black Sea feed grain is being offered at a substantial discount to U.S. corn, and is affecting exports of that grain.

While most attention on Brazilian production centers on soybeans, corn is taking more of a leading role. At the present time, Brazil’s new crop corn sales are at 30 percent of production, with the normal volume being fewer than 5 percent at this time.

These heavier sales are the result of increased corn plantings, with acres of that crop expanding by 15 percent this year. The real question is if these increased corn plantings will cut into soybean acres, or increase Brazil’s presence in world trade.

The cash grain market has seen more harvest pressure than normal this year, as producers move larger volumes of grain right from the field to the supply line. “Harvest pressure” is a term that describes the season weakening of basis as more grain becomes available and buyers no longer have to pay premiums for deliveries.

This is especially true for Southern states, where farmers were able to capture the inverse in the cash market, as nearby bids have held a premium to deferred bids. Producers are also taking this opportunity to avoid storage fees.

There are some thoughts that heavier movement is the result of lower-quality grain, though, and producers do not want the inventory to spoil in their bins.

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.