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KARL SETZER

By Staff | Nov 30, 2012

Trade is paying close attention to the corn planting pace in Argentina. Argentina’s corn planting is running close to three weeks behind normal due to rain delays early in the season.

There are also thoughts that at least some acres intended for corn production will now be used for soybeans instead. This could easily open the door for an increase in corn exports later in the marketing year.

European corn demand may be underestimated this year.

Private analysts believe Europe’s corn demand will reach 11.5 million metric tons due to last year’s drought. The USDA is only predicting Europe’s corn imports to total 6.5 mmt in its outlooks. Feed wheat is becoming harder to find in the world market, which is the primary reason for the higher of the two estimates.

Even with these higher usage estimates, corn values could erode. The USDA is expected to forecast a record crop for the United States in its February outlook, possibly as high as 14 billion bushels. Corn production this high and current usage would leave the United States with almost three times the ending stocks that it will have this year.

If correct, this level of corn stocks would drop corn futures close to the $5 per bushel range.

While we could easily see an increase in demand for U.S. corn in the global market, that grain is still seeing stiff competition from feed wheat. One country that is being watched the closest is China.

Chinese officials project their feed wheat usage will total 30 million metric tons this year, while the USDA is only projecting China’s wheat usage at 22 mmt.

The price spread between wheat and corn is starting to favor corn though, which could reduce the amount of wheat being used.

One factor that could determine how much wheat is used as a feed grain in the global market is quality. Brazilian authorities claim the quality to that country’s wheat crop is poor this year, and it is quite possible a large portion of it will only make feed grade quality.

If correct, this could easily generate increased competition for U.S. corn in the world market.

The U.S. soybean demand estimate may be underestimated as well. Not only is this from exports, but from strong demand in the domestic market also.

Soybean crush is already 9 percent ahead of estimates and we are only two months into the marketing year. This demand may not last though, as both crush and exports will likely decline as the marketing year progresses and soybeans become harder to source.

Some analysts believe the bull story in the U.S. soybean market has run its course however.

The USDA increased its soybean carryout in the latest supply and demand report, indicating price rationing is in fact working.

Ending stocks are still projected at a very tight 140 mb though, and even with a slight reduction to demand, it is still at an elevated rate.

This carryout could be stretched even more if planting or harvest is delayed in the United States next year.

What is confusing trade even more is the potential for a record soybean crop in South America this year. South American soybean production is expected to be large enough to cover any shortfall the United States will have later in the marketing year.

It is even believed that the United States could import soybeans prior to the next harvest if needed to satisfy demand. While this is a possibility, logistic issues will prevent soybean imports from taking place at a sizable volume.

Karl Setzer is a commodity trading advisor and market analyst at MaxYield Cooperative. He can contacted at ksetzer@maxyieldcooperative.com.

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