By KARL SETZER
Market Analysis 

Now that trade has time to fully absorb the final yield numbers for the marketing year, more emphasis needs to be placed on usage. For corn, most interest is on ethanol.

Ethanol demand has been running ahead of estimates this year, causing the USDA to increase its yearly demand by 50 million bushels. The question now is if less favorable profit margins will reduce annual corn demand from the industry.

Trade is also thinking we could see a decrease to corn exports in future balance sheets that would more than negate any potential increase to ethanol use. It is also not out of the question we could see further reductions to feed demand on corn, which was reduced by 100 million bushels in the January reports.

There is just as much debate surrounding soybean demand and use. The USDA increased soybean exports a minimal 10 million bushels in the latest supply and demand report, and left crush unchanged. This was surprising, as both of these figures have been running ahead of the pace needed to meet our yearly projected totals.

Of these two commodities, trade seems more surprised by the lack of change in soybean ending stocks in recent projections. It was well publicized that trade expected a reduction to soybean carryout in the January balance sheets, with some analysts cutting ending stocks by upwards of 200 million bushels.

While this may still happen, to see carryout drop all at once was unlikely to happen in the first place. Trade will likely wait until future balance sheets to make these adjustments, mainly to verify demand has not been front-loaded this year.

Another difference in opinion surrounds new-crop acres. It has long been publicized that new crop corn futures would need to push for acres, as soybeans appear to have a more favorable return.

While this did offer the corn market support, it has since faded. This is from the fact soybean futures have declined substantially since the January supply and demand report. At the same time, the threat of acres shifting away from corn should at least help support values at today’s levels.

There is another factor in potential acres that trade seems to be overlooking. Wheat planting in parts of the Eastern Corn Belt was extremely slow, and in some cases, did not take place at all. It is not out of the question these acres could end up getting planted to either corn or soybeans next spring.

It is possible under this scenario that we could actually see more acres of both corn and soybeans than what is being estimated.

While much of the talk in the market recently has focused on corn versus soybeans, there is another grain that could surprise analysts. Sorghum is holding a sizable premium to corn at the present time, and demand for that grain is consistently rising.

The most interest for U.S. sorghum is coming from China, as sorghum does not have the import restrictions on it that corn does, mainly those surrounding GMO content. Acres in fringe areas of the United States could increase sorghum plantings, especially those where wheat production has been affected by weather.

We have seen little buying interest in the physical market recently. The primary reason we have not seen more buying is the abundant global supply of commodities at this time. This has shifted the market into what is termed a "buyer’s market," which means buyers can sit and wait for values to continue dropping before extending coverage. Even in a hand-to-mouth market, this gives buyers the upper hand in price discovery

One thing this type of market has generated is basis volatility. Instead of a general firming of basis, we are seeing localized pushes being paid, many of which have narrow windows of opportunity for a seller. This is not just the case for a farmer holding inventory, but for a commercial grain terminal as well. As a result, any hesitation to make a marketing decision could be costly.

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.