By KARL SETZER
Market Analysis 

In a slightly surprising move, the USDA reduced U.S. corn carryout in the February balance sheets. The agency increased both ethanol and feed, seed and industrial uses by 75 million bushels each. A portion of this was negated with a 25 million-bushel decrease to feed use.

This will still leave the United States with a comfortable 1.82 billion bushels of corn ending stocks, and may do little to instigate a market rebound.

Only minimal changes were made to the domestic soybean balance sheets, as well. The USDA increased soybean crush by 15 million bushels and exports by 20 million. At the same time we did see soybean imports increased 10 million bushels.

These changes did reduce soybean carryover to 385 million bushels, and while comfortable, it is still below what most analysts were expecting.

Even fewer changes were made in the wheat balance sheets. After all adjustments, U.S. ending stocks increased a minimal 5 million bushels, but even this was bearish as domestic wheat reserves are projected at a huge 692 million bushels, more than 100 million greater than last marketing year.

The USDA also updated the global balance sheets and, as with the domestic side, few changes were made. Brazil’s soybean production was cut by 1 million metric ton (mmt) and corn production was left unchanged. Much of this was countered with 1 mmt increases to both Argentine corn and soybeans.

The lack of changes was reflected in the global balance sheets that has corn at a comfortable 198.6 mmts and soybeans at a near burdensome 89.3 mmts.

We are starting to see more spring weather outlooks released for the United States. El Nino indications have turned more neutral in recent weeks. We have also seen private forecasts that are calling for a drier spring than earlier predicted in the Midwest, but still wetter for the Plains.

While it is still too early to be overly concerned with forecasts such as these, before long they will start to be more of a price discovery factor. The real question surrounding these forecasts is what impact they may have on acres.

Historically a dry spring across the Corn Belt tends to lead to high corn plantings. It is not out of the question that between a narrowing corn/soybean price spread and favorable weather, U.S. farmers could plant more corn acres than what several analysts have predicted. As a result, we have started to see new-crop corn futures lose some of their premium in the futures market.

There remain concerns in the market over the future profitability of the U.S. ethanol market. While plants are experiencing favorable returns in the spot market, these quickly drop to negative returns in a matter of weeks. Given the recent downturn in the energy market on a whole, we have seen pressure on the ethanol industry, as well as building reserves.

The one factor that could end up supporting the ethanol industry more than anything else is exports. There is talk in the market that Brazil may exit the global export market, especially since the country has just decided to increase its domestic ethanol blend rate.

While Brazil may cut back on the volume of ethanol it exports, to see a total halt to sales seems unlikely. According to research from the firm F.C. Stone, the removal of Brazil from the global ethanol market opens the door for 770 million gallons of potential sales.

Concerns are starting to build over the state of the U.S. farming economy. Lenders are reporting higher amounts of borrowing than in recent years, mainly from declining commodity values and tightening cash supplies.

Sales of new equipment are also being reported as down 26 percent in the past year. The question now is if farmers will also cut back on inputs this spring.

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.