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KARL SETZER

By Staff | Aug 9, 2013

We continue to see a significant difference in crop condition between the western and eastern Corn Beltregions.

Portions of the western Corn Belt have only received 30 to 50 percent of their normal precipitation since June 1.

This region of the United States produces 20 percent of the nation’s corn supply. Even if we would see a 20 percent corn yield decline such as we did last year in this area, we could still see a 150-bushel-per-acre national average assuming favorable conditions in the eastern Corn Belt.

The real concern in this scenario should be on soybeans. The driest region of the western Corn Belt produces 26 percent of the nation’s soybeans.

If we would see a 10 percent soybean yield drop in this area, it would cut the national yield by 3 percent according to the firm F.C. Stone.

Given the fact the U.S. cannot afford to lose any soybean production, this will keep a premium in soybean futures.

More attention is being placed on South America as those countries prepare for another planting season. Weather is favorable for planting in South America at the present time, but most of the focus in on what crops may be seeded.

Corn values in South America remain depressed, and, in turn, we could easily see elevated soybean plantings. The possibility of a large South American soybean crop is tempering the bullishness from potential losses in the U.S.

We continue to see strong competition in the domestic corn market from wheat. All marketing year we have seen wheat displace corn as a feed ingredient, with some feeders using 100 percent wheat in rations. We are now seeing an increase in wheat use in ethanol manufacturing. Some plants across the U.S. are blending wheat up to 10 percent with corn and seeing little change in ethanol production.

The U.S. is also seeing increased competition in the global corn market from Ukraine. This is mainly from price, as Ukraine corn is currently being offered at a substantial discount to the U.S.

This price spread has been great enough that even China is considering Ukrainian corn over that from other sources. If Ukrainian corn starts to displace the U.S. in other regions, it could cause a considerable change in demand outlooks.

There is doubt starting to be voiced over just how tight the U.S. soybean balance sheets really are. Internal soybean use continues to run well above trade expectation for the year, and soybean inventory has been cut thin in this market.

Export loadings have been sluggish though, and inventory at those terminals is more than adequate. If needed, these soybeans could make their way back into the internal market to cover needs at those locations.

Groups have stepped forward and asked for the government’s mandate on corn-based ethanol production to be eliminated. These individuals claim corn-based ethanol manufacturing causes over-inflation in corn values, and drives up food and feed costs.

There are also accusations that manufacturing ethanol out of corn generates more pollution than it prevents. What these groups would rather see is an increase in second generation ethanol production, which is made from materials such as corn stalks and stover.

We continue to see convergence take place in the markets. Convergence is when contract values come together, normally the cash and futures ahead of delivery.

We are also seeing old and new crop contract values even out. This has greatly reduced the inverse we have seen between the two crops years, especially in soybeans.

Karl Setzer is a commodity trading advisor/market analyst based in the West Bend office of MaxYield Cooperative. He can be reached at (800) 383-0003.

The opinions and views in this commentary are solely those of Karl Setzer. Data used for this commentary obtained from various sources believed to be accurate. This commentary is intended for informational purposes only and is not intended for developing specific commodity trading strategies. Any and all risk involved with commodity trading should be determined before establishing a futures position.

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