By KARL SETZER
Market Analysis 

It is a widely publicized opinion that trade underestimates yields in August and September in large production years. What may be surprising is how much corn yield is missed in such years.

In 1994 the final corn yield was 9.6 bushels per acre larger than what was predicted in the September balance sheets. In 2004 this difference was a large 11 bushels, which would put corn yield close to the 180 bushels-per-acre target.

The real unknown in corn balance sheets is acres. In September the USDA used a harvested acres number of 83.8 million on corn. Some analysts believe this will decline to 82 million in the October supply and demand report.

While this is possible, even a minimal increase to corn yield of 2 bushels per acre from September would still keep ending stocks above 2 billion bushels.

The same yield deviation from previous large years in corn also took place in soybeans. In 1994 and 2004 the final soybean yield was 4 bushels per acre larger than the September estimate. A repeat of this yield increase this year would put carryout close to 800 million bushels, the largest volume of soybean ending stocks in recent history.

Trade may be underestimating South American soybean production for this coming year. Analysts in Brazil believe increased acres and favorable growing conditions will increase South America’s soybean output by 10 million metric tons (mmts) from a year ago. This would be close to 7 mmts larger than what the USDA is predicting for South American soybean production.

It would not be surprising to see this increased production continue, as soybean production in Brazil is more profitable than other crops, mainly corn.

Economists believe China’s corn and soybean demand will continue to increase in order to satisfy an ever-expanding livestock industry. Beef consumption in China is forecast to rise by 70 percent from now until the year 2030.

While this increase in beef demand may in fact take place, the question is if China will import feed grains to feed livestock or just import meat products instead. How much China’s beef demand will increase depends heavily upon the country’s economy, though, which some believe to be rather unstable.

Chinese soybean imports are forecast to be a record 2.58 billion bushels this year. This is a record 437 million increase over last marketing year. Officials in China claim soybean imports this coming year will be nearly the same volume as oilseed demand in the country remains high.

There are some thoughts that soybean imports could be even higher as China builds soybean reserves, and also to fill the void from not using distillers grains in feed rations.

We are seeing forecasts released for this coming year’s financial situation in agriculture, and some believe we will see a sharp reduction in the industry’s net income. This is from the sharp drop we have seen in corn and soybean values from a year ago. While this is true, livestock producers will likely see more favorable returns due to lower feed grain costs.

We have seen the values of U.S. grains and soybeans decline to a point where we have some of the most competitive in the world market. Buyers are still hesitant to book large volumes of U.S. offerings, though, as they are concerned with logistics.

It is a well-known fact the United States is suffering from logistics issues, and this is in front of what is going to be a record large harvest. Buyers will pass on low-priced offerings in the marketplace if they are not confident they will receive timely shipments.

A factor that could support market values more than anything else right now is simple trade attitude. The current speculative short position in commodities is the largest in the past year. Even the slightest hint of a bullish news story, and we could see a sudden rush of short covering in the pits.

While this action may not give us a sustained rally, it could be enough to push values back to favorable levels.

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.