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KARL SETZER

By Staff | Jun 7, 2013

There remains debate surrounding the USDA’s feed usage number on corn.

USDA is projecting a 21 percent increase in new crop corn demand for feed over this year. This seems hard to justify given the reduction we have seen in U.S. animal units.

USDA is backing its projection by claiming U.S. cattle and hog herds are going to build in the near future, but the rate of this increased demand seems overly optimistic at this time.

U.S. corn continues to see competition in the market from cheaper feed wheat. This is a situation that could continue for the remainder of the marketing year.

The most interest in feed wheat right now is in the Southeast, where there are prospects for a large soft red wheat crop.

Corn may struggle to rally in the future if it needs to remain competitive with wheat.

The amount of corn that will be fed in the global market this year is also being questioned. Global corn production this year is up from last, and this has several feeders shifting back to corn from feed wheat, especially in the Asian market.

As a result, feed wheat values could easily decline, and work their way back into feed rations. This means that even with increased demand, corn values may have a hard time rallying in the world market.

China was in the market last week and booked U.S. corn, and thoughts are we could easily see more of this in the future.

Economists claim that the closer U.S. corn gets to the $5 per bushel level, the more likely we will see Chinese imports. While old crop has some distance to cover to make this happen, that is close to where new crop is already.

USDA claims China has now become a permanent corn importer, even with a sizable increase in domestic corn production.

While China may in fact need corn imports, the main question is where this grain will come from. Corn production outside of the United States has increased 230 million metric tons in the past 10 years.

This means Chinese buyers have many more options for corn needs than just the United States, and many at a lower value.

Old crop U.S. corn is still seeing ongoing competition in the world market from other sources with lower values. The main one of these is Argentina, but there are also others such as South Africa.

One benefit the United States holds over these other corn sources is logistics, mainly the ability to ship corn in a timely manner. Some buyers feel this is worth the premium they pay for U.S. corn.

Domestic soybean usage is a different story at this time. Cumulative soybean crush for this marketing year is up 5 percent from a year ago.

This is 9 percent greater than what USDA is projecting for soybean crush this marketing year.

What this tells us is that either USDA has greatly underestimated soybean demand this year, or we will see a considerable drop in soybean usage over the next several months.

There is talk in the market of South American soybeans working into U.S. ports. At the present time it would actually make economic sense for U.S. soybean crushers to import cheaper soybeans from South America than buy them off the domestic market.

While this is true, the fact remains that the volume of imports needed in a timely manner are unlikely to satisfy demand. We may instead see imports of meal which can be used closer to import terminals, especially in the Southeast.

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

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