By KARL SETZER
Market Analysis 

The recent narrowing of the price spread between corn and soybean futures has reduced talk of acreage shifting from one crop to another. The ratio between corn and soybeans is near 2.5:1, which is normal. The ratio means it takes 2.5 bushels of corn to equal 1 bushel of soybeans in value.

Trade will get its first look at new-crop acreage estimates in the February Outlook Forum, but the official numbers will be released in March.

Even though there is less concern over acres shifting from corn to soybeans, the threat is supporting corn values. This is from simple economics that show our current demand base will require at least a trend yield to maintain adequate corn reserves.

In fact, some economists believe corn yield will have to be no less than 170 bushels per acre this coming year to prevent a stocks drawdown. The real factor in all of these estimates is demand, though, and if the recent pace we have seen will increase or decrease in upcoming months.

There are concerns in the market that China may reduce its soybean demand because of an unstable economy. This seems to be more of a psychological concern than an actual one. China is still seeing an increase in livestock production, and will need protein grains for feed rations. This may limit China’s soybean demand growth, but also prevent it from faltering as some analysts expect.

We are starting to see a change in opinion regarding soybean carryout for this marketing year. The USDA is projecting soybean carryout at 410 million bushels for the year, which several analysts believe is too high. Some think it will be half this amount, while others claim ending stocks may only decline by 50 million bushels.

If the reduction to soybean carryover is not at the top end of estimates, it may have little if any impact on soybean futures. Even if we do see changes to U.S. soybean balance sheets in the future, these may be offset with global production increases.

All eyes are currently on South America as those countries begin their harvest season. Early activity indicates higher yields than what the USDA is using in balance sheets. It is not out of the question that March 1 global soybean stocks could be 25 million metric tons (mmts) larger than a year ago.

At present the USDA predicts Brazilian soybean production will total 95.5 mmts. Individuals in Brazil believe the crop will total from 95-98 mmts. Even the low end of these estimates is considerably larger than last year’s Brazilian soybean crop of 86.7 mmts.

A recent study form Iowa State University on projected break-evens for corn and soybeans generated some concerns in the market. According to ISU, if a farmer has a land cost of $273 per acre, their break-even would be $4.23 per bushel on corn and $10.26 on soybeans.

The concern with this is these values are both above the current market. There are several other variables that need to be factored into a cash flow, though, as well as yield potential.

One of the greatest limiting factors for the futures market recently has been the general lack of fresh news. Nearly all of the news the market possesses has already been factored into values. This is a seasonal issue, and is commonly referred to as the Winter Doldrums. Typically, this type of a market factor leads to lower values.

Some economists believe the recent downturn we have seen in commodities is temporary, and values will likely find support from a weak financial market. It is not uncommon to see what is called a "flight to quality" when financial markets are pressured.

In such times investors want to own physical products that tend to be less volatile and hold their value. This is likely one of the primary reasons we have not seen funds liquidate more of their long position than they have.

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.