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Focus is on corn, but really ought to be on soybeans
 
We continue to see a wide range of estimates on new-crop corn demand. Some analysts have corn for ethanol use at 5.3 billion bushels, with this year’s use on track to total 4.5 billion.

The real question is on corn exports though, where some analysts have 1.65 billion bushels dialed in and the USDA released a projection of 1.5 billion in the February Outlook Forum. This will be a substantial rebound from this year’s corn exports, which may total 800 million bushels at best.

While this new-crop corn use is being focused upon, old-crop soybean demand and rationing should really garner more interest. For the remaining six months of the marketing year the United States only has 60 million bushels of free-stock soybeans it can sell. Any more than this and the United States stands a legitimate chance cutting into domestic needs.

The last year the United States was in this position was in 2004, when just 53 million bushels of soybean sales took place from this point forward.

It is becoming increasingly apparent that price rationing at today’s levels is not working in the soy complex. We continue to see buyers such as China show interest in U.S. soybeans, even though they carry nearly a $1 premium to Brazil’s.

This is from logistics, as buyers are fearful they will not get timely delivery of Brazil’s soybeans and are willing to pay extra for this security. The question now is what level soybeans do need to reach to make this rationing happen.
The buyer who is getting the most attention is China. Through the first five months of the marketing year, China’s soybean imports totaled 21.8 million tons.

This is actually down 7 percent on the year, with forecasters predicting a 6.4 percent increase in imports. If China steps in to increase soybean coverage from the United States, it may have to be stopped with price rationing.

Price rationing is having more of an impact on the corn market. The United States is keeping corn exports to a minimum, which is helping keep enough corn on hand for domestic needs.

The main one of these is feed demand, which could be up to 300 million bushels larger than the USDA is predicting. It is not out of the question this could drop old-crop ending stocks to the tightest level seen since May 1996, when ending stocks were predicted at 317 million bushels.

The country market is coming to the realization we could see lower commodity values in the not-so-distant future, especially on corn. Even if we see a below trend but more normal yield on corn, we could see substantially lower values.

Even a yield of 150 bushels per acre, which is 15 bushels below trend, could cause a substantial rebound in ending stocks. It is not out of the question a yield this high, when combined with current usage, could drop corn values to the $4.50 range.
There is another factor that could pressure corn futures even more than yield or demand. The U.S. financial market has rebounded in recent weeks, and the Dow is now approaching all-time high levels. The last time we saw the financials trade this high, corn dropped to the $3.40 level.
While fundamentals are more favorable in today’s market, an exodus by the fund traders could cause significant price pressure.
A recent poll indicates producers across the Corn Belt believe they will see improved corn yields from a year ago. A large number of the producers questioned believe their corn yields will rebound to the 150-155 bushels-per-acre range. The majority of these are in the Eastern Corn Belt, where weather conditions have been better than in the Western regions.

While even the top end of this corn yield range is below USDA estimates, it is more than enough to cause a considerable build in corn inventory, given today’s usage.

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.
3/27/2013