Even though the U.S. balance sheets have just been updated, we will continue to see debates in the market surrounding grain demand, especially on corn. It is becoming increasingly apparent the United States will not reach projected quotas on corn exports, and possibly ethanol, either.

 The real unknown in this remains feed demand, as U.S. livestock numbers are down 1.6 percent from a year ago. Many analysts have been claiming feed demand will make up for lower export and ethanol demand, but this may be difficult to prove with these numbers.

The real concern, however, should be on the soy complex. The United States has already booked 94 percent of its yearly soybean sales estimates. If this demand pace continues, it is possible the U.S. could deplete its domestic soybean reserves by May. While this is highly unlikely, it shows us how much soybean rationing needs to be done in the complex.

Given updated usage and current inventory, the United States needs to ration nearly 500 million bushels of soybean demand from now through the end of the marketing year. At the same time, South America needs to increase its soybean shipments an equal amount to satisfy world demand.

This would be 260 million bushels more than the previous record of South American soybean exports during this time frame.

The real issue for the world soybean complex is logistics. The United Sates is on course to deplete its soybean reserves by May. Apparently, trade believes these low stocks can be replenished with South American production.

While this is feasible, the logistics issues that South America faces every year will likely restrict any soybean imports. This is an issue that will be debated for the next several months. The fact remains that the longer it takes rationing to begin, the stronger the rally it will cause.

A recent study shows the involvement of index funds in the commodity market is declining. Index funds have lowered the amount of funds invested in commodities from a year ago by $10 billion.

This is from the realization that commodities are not a safe long-term investment such as are the financials. Index funds still have a large $133 billion in commodities, though, as they do see value in the market.

The exit of these index funds does not necessarily mean less volatile trade. Speculative trader interest has actually increased in recent weeks, mainly from updated weather outlooks.

The drought that has impacted the United States for the past several months is expected to linger through at least the start of the spring planting season. This weather threat increases the chances of lower yields and elevated futures, which is giving speculative traders the indication we could see much higher commodity values in the future.

There are analysts who question whether China will actually take delivery of all soybeans it has booked from the United Sates. China has a historical tendency to cancel soybean bookings as the marketing year progresses.

This happened last year, when China only took delivery on 99 percent of the soybeans it had booked at the end of January. At other times, China has continued to buy soybeans from the United States all marketing year.

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 are 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.