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KARL SETZER

By Staff | Jan 11, 2013

Early soybean harvest is taking place in Brazil. So far, yields are running about average.

Early results indicate soybean yields are ranging from 38 to 44 bushels per acre. The majority of these initially harvested soybeans will be used to fill domestic storage, but before long, Brazil will be making exports.

Trade is starting to look forward to the USDA February Outlook Forum that takes place in Washington DC. It is a general consensus that the USDA will project a trend corn yield of close to 164 bushels per acre.

This depends heavily upon weather during the growing season though, and how conditions would need to be near perfect to reach a yield this high.

Still, trade is aware that a yield anywhere close to this could easily cause corn-ending stocks to more than triple this coming marketing year.

The obvious question in the corn complex is what this type of a corn yield and carryout would have on corn values. Some economists claim that just three well-timed rains next spring could cause a crash in corn futures of as much as $3 from current levels.

If correct, the reaction from this would impact farmland values, production, and the entire ag complex. At the same time a correction this sharp in corn values would be a great benefit to corn demand and we would likely see a rebound in usage.

One of the primary factors in future corn balance sheets will be ethanol manufacturing. Ethanol production has been the main driving force in corn demand for the past 10 years and now consumes 34 percent of the U.S. corn crop.

Ethanol blending is now nearing its 10 percent blend wall though, and increased corn demand by the industry is questionable. The real concern in the corn complex is that with declining fuel demand and increased plant efficiency, corn demand will actually decrease.

The unknown in the market is if domestic corn demand can off-set some of this global weakness. Corn for feed is currently projected as being down as much as 9 percent from a year ago, but some analysts feel this may be too steep of a decline.

Ethanol demand is expected to hold steady on the year at best as many plants have either slowed or halted production altogether. Even the slightest shift in either supply or demand on corn could have a significant impact on futures, easily moving values by as much as $1 per bushel in either direction.

It is quite possible that China will soon halt its soybean buying from the United States for the remainder of the marketing year.

This is from the simple fact China is at the limit of how many soybeans it can take physical delivery on.

China has already booked 18.7 million metric tons of U.S. soybeans. Given historical trends, China may only book another 4 to 5 million tons of soybeans from this point forward.

Winter weather is becoming more of a factor in the market. Trade is now starting to determine how much, if any, of this year’s drought in the United States will be relieved by recent precipitation.

So far it appears as though the region that will benefit the most from precipitation is the Eastern corn belt. This is concerning for the Plains states, where severe drought has impacted grain production for the past several years.

The U.S. cash grain market is becoming softer as we see an increase in grain movement across the corn belt. This is not necessarily new sales, but more from grain that was forward contracted.

Buyers are allowing early delivery of these contracts to avoid paying the premium that it would take to encourage spot sales, and hopes are this grain will be replaced with new purchases at a later date and time. It would not be surprising to see basis values start to fade if this scenario becomes a reality.

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

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