The USDA’s September Quarterly Grain Stocks report heavily favored the corn complex. U.S. corn inventory as of Sept. 1 stood at 988 million bushels, well below estimates for 1.126 billion and last year’s 1.128 billion.

Soybean inventory on that date totaled 169 million bushels, which was more than expectations by 37 million, but under the year-ago figure of 215 million. Wheat stocks on Sept. 1 were 2.1 billion bushels, with estimates being for 2.28 billion, and the 2011 figure of 2.15 billion.

The reason for the increase in U.S. soybean inventory was from a jump in last year’s crop size. The USDA increased 2011 harvested acres by 140,000 and crop size by 37.5 million bushels. This puts last year’s soybean crop at 3.090 billion bushels.

While this increase seems sizable, it still leaves U.S. soybean stocks to use at a historically tight level.

Trade continues to compare actual corn use to projected corn reserves. Since the USDA began projecting this year’s corn use in May, nearly 2.75 billion bushels of demand has been rationed with higher values. This has dropped total corn use 1.08 billion bushels under a year ago.

There are several analysts who do not believe corn use has been rationed this much, though, and that we will see an increase in consumption later in the market year, along with higher values.

Of all the corn uses, the one that could have the greatest impact on ending stocks is Chinese demand. Chinese officials claim that country will cut back on corn imports by roughly 1 million metric ton (mmt) in 2013.

This would leave China’s corn imports at an estimated 4.5 mmt. What is more concerning is these same officials have indicated they may wash out of current bookings if corn values retreat far enough.

While the current corn stocks issue is a worrisome issue with the market, trade is also well aware it could only be a temporary situation. The United States has suffered three consecutive years of poor yields, which is uncommon. A fourth year of below-trend yields would be highly unlikely, although still possible.

Given the grain usage that has already been cut, it may be difficult to consume a normal corn crop, especially for the livestock industry.

The tight stocks-to-use situation for soybeans is only likely to be a temporary one, as well. South American countries have announced soybean plantings will expand a considerable amount this year over last. Add in what is currently perceived as more favorable growing conditions, and increased soybean production is not out of the question.

The greatest obstacle for soybean expansion is logistics in South America, not only for getting soybeans to export, but for getting inputs to regions where they are needed.

Not only did drought impact corn yield this year, but also corn quality. For several weeks we have heard about drought elevating toxin levels in corn, but now it is reported that drought has reduced stalk quality.

Many regions of the Corn Belt report lodging, as stalks have become brittle following the summer drought and are now leaning or have fallen over completely.

One quality issue that was not compromised by drought this year is test weight. Newly harvested corn is coming in with a relatively high test weight in many areas, with weights in the low-60s pounds per bushel not uncommon.

It is not unusual to see test weight compromised in years with drought conditions. If these test weights remain elevated through the end of harvest, it could easily alter what we see for crop size in future supply and demand reports.

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.