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USDA raises corn, soybean and wheat ending stocks
 
Only subtle changes were made to the corn balance sheets in the November USDA supply and demand report. Corn yield is now estimated at 122.3 bushels per acre and crop size at 10.725 billion bushels, both slightly larger than in October.

Carryout is now estimated at 647 million bushels, a 28 million-bushel increase from last month. The only significant change in corn demand was a 17 million-bushel increase in industrial use.
Soybean numbers had more changes, and had a negative impact on the complex. Soybean yield increased a record 1.5 bushels per acre from October, to a 39.3 bushels per-acre U.S. average. This increase in yield raised the crop size to 2.97 billion bushels and elevated carryout 10 million bushels, to 140 million.

The USDA did increase soybean usage by 20 million bushels on crush and 80 million on exports.

The numbers in the updated balance sheets that surprised trade the most came from the wheat complex. The USDA cut U.S. wheat export forecasts by a large 50 million bushels. This raised the projected carryover on wheat to 704 million bushels, which is still 40 million under last year’s ending stocks.

A lower global wheat crop is expected, though, because of weather losses in the Black Sea region and Australia.

There are conflicting opinions on how much corn the United States may import this marketing year. The USDA is projecting corn imports of 75 million bushels this year, but some analysts have it as high as 125 million.

These may both be inaccurate, though, as some of the corn the United States recently booked for import has been resold to other buyers, mainly Europe. Drought has reduced European crop sizes and increased imports will be needed to satisfy demand.
Corn futures are starting to show strength from speculation; we will see increased export demand in the near future. This is coming from thoughts other corn suppliers in the world market are running out of exportable inventory.

While this may be true, the question is if elevated corn exports would cut corn ending stocks, or merely offset reduced domestic demand.

The timeline for return of profitability to the U.S. ethanol industry is unclear. Spokespeople for the industry claim the quickest way to increase profits would be to promote exports and raise blend rates.
There has long been talk of increasing the U.S. ethanol blend rate to 15 percent, but so far, only eight stations in the entire United States offer ethanol at this blend. It may also be hard to increase exports on ethanol, given a rebound in South American production, which is historically cheaper than fuel from the U.S.

Much of the talk on soybean demand this marketing year has focused on exports, but domestic demand is elevated as well. We have seen strong crush margins on soybeans all year, and buyers have pushed for inventory to capture this.

Soybean crush may not slip anytime soon either, as soy meal is becoming a more economical protein source than distillers grains. We are also seeing dwindling inventories of distillers grains as U.S. ethanol production slows.

Even though Brazil has already long been a competitor of the United States in the global commodity market, this rivalry could soon increase. Brazilian officials have stated within the next 12 months, China will likely approve the imports of Brazil’s genetically modified soybeans.

This news comes on the heels of the European Union opening up for Brazilian corn imports. This means the United States will need to become more price-competitive in the world market than ever before.

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.
11/14/2012