By KARL SETZER
Market Analysis 

Many analysts tend to forget the basic function of the commodity market is price discovery. There are several factors that can and do work into this process, but the simplest one is supply and demand.

At present it appears the futures market has new crop yields of 165 bushels per acre on corn and 45 on soybeans factored into new-crop prices. We may need to see a solid indication of increased demand or a potential yield below these projections to change market direction.

It is quite possible new-crop soybeans will struggle more than corn, given current market outlooks. This is from both the domestic and global points of view. Many analysts believe new-crop soybean acres will be higher than currently estimated, given planting delays for corn.

It is also believed that by September, South America will be sitting on a record 54 million metric tons (mmts) of soybeans from high yields and the holding of old-crop inventory. This comfort level in the global market is being reflected in new-crop U.S. soybean sales that are just 50 percent of a year ago.

Not all analysts are bearish on new-crop soybeans. While South American soybean reserves will be considerably higher this year than last, this does not necessarily mean they will bring the United States competition. It is believed South American farmers may elect to store as many of these soybeans as possible as a hedge against poor economies.

As a result, some analysts have already projected higher new-crop soybean demand than the 3.78 billion bushels that was released in the February Ag Outlook Forum.

At the same time, new-crop corn futures are finding light to moderate support from a wide range of factors and opinions. One of the primary ones is that new-crop acres will not be as high as estimated. This is from the wet conditions we have seen in southern and fringe area states.

Where corn may find most support is from the global side of balance sheets. There are some analysts who have reduced the size of this year’s global corn crop by 50 mmts. Others are not as negative to production, but still believe the world corn crop will be reduced by 20 mmts.

Even the low end of these estimates should help increase demand for U.S. corn in the global market. There are also thoughts that last year’s corn crop was larger than what trade has been using in balance sheets.

One of the most heavily disputed numbers in the corn complex at the present time is feed demand. The USDA has total feed demand on corn estimated at 5.3 billion bushels for the marketing year. Given recent corn usage for feed it would appear this number is 300 million too high.

If the United States was to reach the current projection it would require a 29 percent increase in feed demand for the remainder of the marketing year. Even though corn is seeing less competition from alternative feed grains, it may be difficult to reach this level given the number of cattle the United States has on feed.

The general feel in the market is that old-crop carryout will eventually top the 2 billion-bushel mark, and this alone is enough to limit an old-crop rally in the current market environment.

Some analysts are already starting to look forward to the May supply and demand report. While this release will give us our first official look at projected new-crop demand, it may also provide a better idea of actual South American production.

For the past several weeks we have been hearing reports of better than expected, if not record, yields across Brazil and Argentina.

These analysts do not feel these higher yields were fully factored in to the April balance sheets.

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.