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KARL SETZER

By Staff | Nov 4, 2011

Harvest is already starting to wind down across the Corn Belt for another year.

As it does, attention shifts more towards corn and soybean demand than supply.

While several producers claim they will hold as much grain as possible in hopes of a rally, several already have grain forward contracted that will help fill the nation’s supply line.

Not only can this affect the futures market, but basis as well.

Seasonal weakness in the U.S. cash grain market this harvest season has been limited.

Producer and commercial storage facilities were mostly empty going into the harvest season, and have the ability to hold a large amount of this fall’s harvest.

As a result, internal processors are already becoming concerned with the possibility of supply shortages once harvest concludes. This is even more of an issue in areas that were affected by low yields and acreage losses.

Trade continues debating whether the current stocks-to-use ratio on corn is bullish, bearish or neutral. At the present time, the projected ending stocks on corn of 866 million bushels are a 6.8:1 stocks-to-use ratio.

This is nearly equal to last year when corn was trading roughly 70 cents a bushel under today’s value. At that time the market was just beginning to ration demand, however, and currently, the United States is seeing corn demand decline at a rapid pace.

There are several factors that have changed the outlook on corn between this year and last. One of the most predominant is Chinese corn production, as that country is expecting to produce 9 million metric tons more corn this year than last.

This increase in output may be just enough to prevent sizable corn imports for at least one more year. We are also seeing a large amount of wheat usage in the feed market which is displacing corn.

Even if China does increase corn imports and the majority comes from the U.S., it may still not impact the market a significant amount.

If U.S. corn yields and demand remain relatively the same for the rest of the marketing year, the United States could have close to 900 mb of carryout. Even if China doubles its corn imports, it would still leave the U.S. corn carryout at 800 mb.

This is not enough to cause speculative buying in today’s market.

Laws in Brazil that limit foreign ownership of farm ground have long been criticized, and are again coming under fire for another reason.

Borrowers are no longer able to use land as collateral for loans due to this law, mainly from the fact that if the loans are defaulted on, lenders cannot take possession of the land.

In turn, this means many producers may not be able to secure needed financing for grain production. Not only could this hurt current production, but limit any expansion as well.

There are other concerns regarding land ownership, not just in South America, but around the world. This is from members of the United Nations who feel the recent push to buy land as an investment is going to hurt the world food supply.

Investors have shown more interest in land recently as an alternative to the volatility in the financial market.

Investors claim this land buying is actually good, as it will bring more land into production.

More emphasis is being placed on drainage control rather than the standard whole-farm drainage tile systems producers have been using for several years.

Many farmers in the Midwest are now putting control systems and valves on field tiles than can be closed when water loss is a concern.

Farmers who have been using these methods say it made a tremendous yield difference this year as soils did not dry out when the drought began.

Environmentalists also support this method of farm drainage as they believe it reduces soil erosion and may prevent flooding.

Karl Setzer is a commodity trading advisor and market analyst at MaxYield Cooperative.

He can contacted at ksetzer@maxyieldcooperative.com.

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