Trade is paying closer attention to long-range weather outlooks. While conditions have been near perfect in recent weeks, trade remains aware of the fact that several forecasters have been calling for a hot, dry summer across the Midwest.

As soon as forecasts start removing the chances of rain for the Corn Belt, we’ll see risk premium added into futures values. This is especially the case for soybeans, where stocks to use is already at a record tight level.

Trade is expecting a significant increase to Chinese corn demand this coming marketing year. Right now the USDA is projecting China’s corn imports for the current year at 4.3 million metric tons (mmt).

It is not out of the question this could increase to 8 mmt, or 315 million bushels, in the next year. While this is not a significant amount considering new crop corn production estimates, some analysts believe China’s corn needs will be twice this amount, which would get trade interest.

What is likely going to be more of a factor is how many soybeans China needs to buy this coming year. China recently released soybeans out of government reserves to avoid the $1 per-bushel inverse in that futures complex. This means by stretching inventory until new-crop soybeans are harvested in the United Sates, buyers can save $1 per bushel.

The question is how far this will further draw down China’s domestic soybean reserve, as well as if the United Sates can ship these soybeans in an efficient manner.

The feeding of wheat in the global market continues to rise. One of the leaders in this increasing use is China. China is forecast to consume 22 mmt of feed wheat this year compared to 13 mmt just two years ago.

Several other countries, including the United Sates, have also increased wheat feeding. This shift in the global market is combining with increased production to push corn stocks back to record levels.

Logistics will likely become more of an issue as global grain trade increases. More demand is starting to focus on taking large volumes of corn and soybeans at harvest, and then waiting six months for the next crop cycle to replenish inventory.

It is hard for ports to handle this large flow of corn and soybeans, especially those in South America. This is why some buyers, such as China, prefer to only do limited business with each commodity supplier.

Historical trends are being used in corn to try to determine price direction. In May 2010 the USDA projected a corn carryout of 1.82 billion bushels, according to the firm F.C. Stone. The stocks-to-use ratio that year was also nearly identical to this year.

In the spring of 2010 corn prices averaged $3.80, compared to the nearly $6 right now.

A recent study conducted at Iowa State University indicates the use of ethanol does in fact lower the cost of gasoline. For the calendar year 2011, data show ethanol lowered the cost of gasoline in the United States by $1.09 per gallon.

This is mainly from the price spread between regular unleaded gasoline and that blended with 10 percent ethanol. Supporters of ethanol are quick to point out if the blend rate was higher, it would drop the cost of gasoline even more.

Not everyone is in favor of raising the ethanol blend rate from E10. In a test of automobiles that ran E15, two out of eight vehicles that were testing higher ethanol blend rates suffered from engine failure.

If this would be used to compare against all vehicles now being driven, it would equate to roughly five million suffering engine issues. It was noted that all vehicles suffering engine trouble from elevated ethanol blend rates were manufactured prior to 2010.

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.