Trade is starting to make comparisons between this production season and previous ones with stressful weather. Many are comparing similarities between now and 1988, when yield was cut substantially from initial estimates. Others are going back as far as the 1930s and finding likenesses.

If weather does remain similar to these years, there is little doubt corn yield will be considerably lower than current estimates.

There are thoughts that if the U.S. corn crop drops to a critical point, usage will start to be cut. One that may see the greatest change is for ethanol manufacturing.

If the government were to alter the ethanol manufacturing mandate by just 10 percent, it would cut corn demand enough to allow for a 140 bushels per-acre yield to accommodate demand. High prices may also start to restrict exports to further compensate for reduced yields.

Another corn use that may be changed in the future is feed use. Some analytical firms believe feed usage of corn will total 4.7 billion bushels this coming year, compared to the USDA estimate of 5.45 billion. Even with a reduced yield, this reduced demand would bring carryout back to a comfortable level.

Not all analysts believe world corn production has been cut, though, as the International Grains Council (IGC) has increased its estimate. The IGC now pegs world corn output at 917 million metric tons (mmt), up 4 mmt from its previous estimate.

This is mainly from projections for record corn crops in China and India. Some analysts question these expectations, though, given recent stressful weather conditions in China.

A greater unknown in the global corn market is where buyers may go for needs. At present, importers can book corn from Brazil for fall delivery at a $35 per-ton discount to the United States. Corn from the Black Sea is at a $40 per-ton discount for the same period. The concern with this is that in the fall, U.S. corn is normally the cheapest in the world market.

We are again seeing a division in crop production between the Eastern and Western Corn Belts. Last year the Eastern Belt suffered from flooding, and this year drought is cutting yields. In the Western Belt though, conditions have been much better. The question in the market now is if yields can be high enough in the West to make up for losses in the East.

The real difference between the two Corn Belts is there are 16 million more acres of production in the main Western grain-producing states than the main ones in the East. This makes it possible that increased production in the West could compensate for losses in the East.

We are seeing a development in the global market that has caught many traders by surprise. Brazil has run out of exportable soybeans, and is even importing soybeans to cover domestic needs.

Historically, Brazil has been a main source of soybeans from now until the U.S. harvest begins, but this is pushing importers to the United States for needs. At the same time, Brazil is exporting a large volume of corn and creating competition with a grain of which the U.S. normally sells a large volume.

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 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.