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Corn market dynamics have changed in just a few weeks
Market Analysis
The entire outlook of the U.S. corn market has now changed. Just a few short weeks ago there were justifiable thoughts the United States could cut its corn reserves to minimal levels.

These opinions have shifted dramatically, and it is likely we could see corn carryout climb back to between 900 million and 1 billion bushels. This would put stocks to use close to 8 percent, which is not associated with today’s corn futures.

The next question is what futures values are equivalent to today’s corn stocks. Historically corn stocks to use comparable to today would indicate July futures closer to $5.50. This is similar to the $1 drop in corn futures many economists are predicting following the recently updated stocks figures.

By comparison, soybean futures are only expected to decline by 50 cents per bushel following the updated inventory report.
Corn stocks in China may be tighter than expected this coming year. Corn yields were reduced in parts of China, where weather was less than ideal. Not only was yield hurt from weather, but so was corn quality.

There is speculation China will need to increase corn imports to make up for these losses. The USDA is only forecasting China’s corn imports to total 2.5 million metric tons this marketing year, which would actually be half of what the country imported last year.
The real question surrounding this story is from where China will book the corn, and if it will even take corn to fulfill shortfalls. Right now corn can been booked from the Black Sea much cheaper than from the United States, but if weather conditions do not change in that region, corn values will begin working higher.

There is also talk of Chinese importers booking milo for feed needs, and we will likely see wheat imports as well.

Trade also continues to question U.S. corn demand, mainly for feed. Second-quarter feed demand on corn was down 30 percent from a year ago, and total feed use for the marketing year is down 6 percent.

This is being credited to the increase we have seen in alternative feed grain use, mainly wheat. The fact that cattle numbers have been dropping for the past year is also reducing the amount of feed needed, on a whole.

Not only have the supply and demand outlooks in the corn complex changed over the past few weeks, but they have for soybeans, as well. Chinese soybean demand is now being heavily questioned.
Bird flu and negative returns on pork production have caused thoughts that soybean demand will fade in the upcoming months.
Meat demand on a whole is down in China, which could have reduced soybean demand without these other issues taking place.
Drought conditions across the United States continue to improve, but is still affecting many regions. In the key grain production state of Iowa, for example, topsoil moisture is rated as 84 percent short.
The real concern is in the subsoil moisture, though, as those levels are minimal as well. While there are chances of rain in the forecast for the Corn Belt, these will also increase the chances of delayed plantings.

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.
4/17/2013