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Higher returns could draw more corn land from beans
 
The USDA made minimal changes to the domestic numbers in the monthly supply and demand report. U.S. corn carryout increased 30 million bushels to a 632 million total.

Soybean reserves were cut 10 million bushels and now stand at 125 million. Wheat stocks were cut 25 million bushels and now total 691 million.

The global numbers were more interesting, with all emphasis on South America. The Argentine corn and soybean crops were both cut 1 million metric ton (mmt), from drought. These losses were made up for with increased production in Brazil of 1.5 mmts on corn and 1 mmt of soybeans.

Trade had been expecting declines in South American soybean production, though, some by as much as 4 mmts.
As we approach the spring planting season we are seeing more comparisons being made between corn and soybean returns. At present, corn is returning almost $200 per acre more than soybeans.

There are thoughts this difference will cause some acreage shifting to corn once planting starts. Some analysts feel this price spread could cause the most corn plantings the United States has seen in recent history.

Market analysts are starting to make price projections for the next marketing year. Many analysts who have been questioned expect lower values on both corn and soybeans.

The average belief is corn values will erode 22 percent next year, and soybeans will decline 17 percent. This would put new crop values close to or even below break-even for many producers across the United States.

These price forecasts hinge on many variables, though, the main one being weather.

In 2012 the national corn yield was cut 25 percent from trend because of drought across the Corn Belt. This situation has not improved much, and another year of abnormally dry soils is quite possible. Even the threat of another drought should keep commodity values supported at present.

Some analysts do not feel the United States will be able to ration as many soybeans as needed to leave adequate old-crop ending stocks. More concern is being voiced over exports than crush, as we have seen crush margins erode in recent weeks.

Economists claim exports can total no more than 150 million bushels after March 1 to ensure adequate carryout. This compares to last year’s 450 million bushels during that period, and 330 million the year before.

Given the fact Brazil’s new-crop soybeans are being offered at a sharp discount to the United States from March 1 forward, this rationing may be easier to achieve than thought.
We continue to hear of poor margins in the U.S. ethanol industry and what the impact of this could be on long-term profitability, as well as the longevity of the entire industry. Even plants that are suffering from poor margins are trying to stay open and running as long as possible.

It is their hope that by doing so, they will still be operational when margins turn positive. The question is how long this will take, as many plants have already exhausted their operational reserves.
How soon profitability returns to ethanol manufacturing, and several other corn processors, depends on new-crop yields and prices. It is not out of the question that with a trend yield and expected plantings, next year’s corn crop could reach almost 17 billion bushels.

Given current usage, this would put corn ending stocks at nearly 4 billion bushels, compared to this year’s projected 632 million. Just the possibility of this becoming a reality is keeping corn values subdued.

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.
2/13/2013