There are analysts who believe the USDA is overestimating world corn production. The agency claims the United States and China will produce record corn crops this year, which will cause global corn inventory to increase substantially.

These analysts claim deteriorating crop condition will likely cut yields from what the USDA is projecting. It is their belief that world corn production could be overstated by as much as 1.38 billion bushels.

The United States is seeing less competition in the global market on soybean sales. Brazil is reportedly out of exportable soybeans, leaving the U.S. as the only source for the commodity in the world.

This is the primary reason buyers keep coming to the United States to get needs covered. The question now is how many soybean importers already have coverage until the new crop harvest begins.

Analysts also believe the USDA is underestimating U.S. corn demand. This is coming from the ethanol industry and cumulative usage that indicates 100 million bushels more demand than what is used in balance sheets. While this is true at the present time, poor margins have caused many ethanol plants to slow operations recently, in turn reducing corn usage.

We have also seen less-than-stellar corn exports recently, to further increase corn reserves at the end of the marketing year.

What is more concerning for corn are the slow exports this marketing year. This is mainly from competition from cheaper feed grains such as wheat. U.S. corn sales are now being pressured by the record crop in Brazil, which is being offered at a $20 per-ton discount in the world market.

The United States is starting to see some of its corn demand slip away. The most noticeable of this is with South Korea. In 2011 South Korea imported 5.67 million metric tons (mmt) of corn, and 85 percent of this came from the United States.

South Korea has now shifted some of its business to South America, though, as that country has produced a record corn crop and is offering the grain at a substantial discount compared to the United States.

One country that may increase corn imports is China. In May, China imported 116 mmt of corn, even with record production. This compares to 12,000 metric tons of corn a year ago.

Not only is the possibility of continued strong corn imports possible, but so is the likelihood of more distiller grain imports, as China has ended the investigation into anti-dumping allegations against the United States.

Grain processing margins are under pressure in the United States. For several weeks we have watched ethanol margins erode, and they are now being reported as negative across most of the industry.

Crush margin on soybeans is now slipping as well, with profits down nearly 20 cents in the past month. The average crush margin on soybeans is still a solid 50-55 cents on old crop and 70-75 cents on new crop.

Analysts continue to use past crop ratings to try to determine possible corn yield. In 2006 the U.S. corn crop was rated 62 percent Good to Excellent by mid-July and yield was 151 bushels per acre. In 2005 the crop was rated 55 percent Good/Excellent by that time and yielded 139 bushels per acre.

If we were to see similar corn yields this year, carryout would be reduced to 500 million bushels or fewer, given current usage.

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.