There is a definite difference in fundamentals for the market at present. Corn is struggling with not only record production in the United States, but in South America.

At the same time, corn use is declining in countries such as Japan, which are using a record low amount of corn in feed rations. Unless we see weather-related losses in corn production, it may be hard to build a bullish story given these fundamentals.

Fundamentals are a main source of support for the soy complex. World soybean production last year was down just over 1 billion bushels from the previous year. This is mainly from the 800 million-bushel loss in production in South America from drought. This will keep soybean reserves at a critical level for at least the next year, and possibly two.

Soil moisture levels are becoming a more talked-about factor in today’s market. As crops develop, their need for larger amounts of moisture increases as well, especially for corn. The concern with this is that many states, including Iowa, are already starting to report soil moisture deficiencies.

Forecasters believe an El Nino is going to gradually start to build for the remainder of the calendar year. If correct, it could mean benign growing conditions to finish out this year’s corn and soybean crops in the United States. In turn, this could also lead to above-trend yields on both crops.

Not all regions of the world benefit from an El Nino, though, as Australia tends to see reduced wheat yields when this pattern is present.

In just a few weeks the final details of the trade agreement between China and Argentina will be finalized. The last remaining topic that needs to be figured out is the regulations on genetically modified corn exports and imports.

Once this is finalized, we could easily see a large amount of China’s corn import business shift to that source, as Argentina’s corn is running from 50-70 cents per bushel under the value of U.S. corn. It would not be surprising to see China hold off on sizable corn imports until that time.

Another country that China may soon go to for corn needs is Ukraine. The Ukraine corn crop is expected to be larger than first thought this year, and could easily provide another 3 million metric tons of corn to the world market.

It has also been announced China will invest roughly $3 billion in Ukraine agriculture in upcoming years, mainly in improved cultivation methods and fertilizer application. This is likely a move to increase Ukrainian corn production and help supply China’s needs with lower transit costs.

Comparisons are being made between this year and 1996 in the corn pit. This is mainly from technical charts that do practically mirror each other between the two years.

In 1996, corn futures bottomed in the first week of June and rallied from that point on. This year is different, however, as the market needed to ration almost 1 billion bushels of corn use in 1996, a measure which is not needed in today’s market.

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.