An often-asked question in the marketplace is what it will take to break futures out of their recent sideways trading pattern. At this stage it will take a production issue someplace in the world, as demand is nearly at full capacity on a global scale.

While this is definitely possible, recent improvements to genetics and farming practices have made it difficult for a widespread production shortfall like we have seen in recent years. As a result, any rally in commodities may have to come from speculative buying, which would come on the heels of a downturn in the financial markets.

We continue to see debate over how acres will be divided in the United States this year and how crops may have to push for needed plantings. Historically we have seen one crop push for acres over another.

This year may be different, though, as corn, soybean and wheat reserves are all high enough that the loss of some acres would not have a great impact on stocks. In fact, what we could actually see is commodity values weaken to deter plantings instead.

Trade is keeping a close eye on Argentine export volumes. The start of the new year brought a tax change to Argentina that reduced the export tax on soybean exports by 0.5 percent. The export tax will now decrease by an additional 0.5 percent per month for the next two years.

It was thought this would be enough to cause at least some elevation in soybean exports out of the country, and increase competition for the United States. So far this tax reduction has not been a factor in trade – but we are not at a point of the year where Argentina exports many soybeans, either.

Even without this competition, concern is being shown over the number of U.S. soybean commitments at present. Yearly soybean sales are 100 million bushels under the expected level for this time of the year. There are indications this number could double by the end of the marketing year.

As a result some analysts have started to increase their carryout projections, with a few topping 600 million bushels.

One benefit the United States has in global soybean trade right now is price. Soybeans sourced from the United States are currently being offered at a $3 per metric ton discount to those from Brazil. While this seems significant, economists claim the spread is currently needed, given the lower quality and possible unloading concerns that surround U.S. soybeans over those from Brazil.

This discount is likely going to erode and shift once new-crop soybeans from Brazil are exported.

Demand for U.S. corn and soybeans has increased in recent weeks, however. This is a direct result of commodity values falling in price. While this is good news, it has also been proven that if values appreciate, buyers will shift their interest to other sources.

As a result we are seeing little market reaction to daily and weekly sales, and likely won’t until we at least cover our yearly sales deficit.

Another reason this increased demand has not received much reaction in the market is that even with elevated sales, the United States is in no position where stocks would be depleted. In fact, without this elevated demand, it is likely that ending stocks will continue to grow.

The United States would need to see exports top projections by a considerable amount to be bullish. At the present time this elevated demand is actually helping prevent further market erosion, more than instigating a rally.

There has been a longstanding correlation between corn and crude oil futures that is now starting to be questioned. For some time these two commodities have moved in the same direction when trading. Recently we have seen a divergence, though, and the two actually trade in opposite directions.

While this is having little impact on corn values, it is having an influence on ethanol profitability more than in recent years.

We are starting to see a build in market volatility. This is not so much on futures, but in basis values. Movement has not been as great to start the year as many buyers had hoped for, and now bids are being pushed as a result.

The slow movement is a result of several factors, including less-than-perfect weather to start the month and from farmers taking deferred payments to start the new year.

The question now is what it will take to generate selling interest, mainly on corn. Producers across the interior market are claiming they would like to see a 50-cent rally before extending their corn sales.

While possible, history shows that this is unlikely to happen in the immediate future. In the meantime, many are using alternative sources of revenue generation, such as the nine-month loan program, to avoid making sales at this time.

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.