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KARL SETZER

By Staff | Sep 6, 2013

Trade continues to debate regional corn crop reports, and what they may mean for yields.

Most analysts believe the corn crop in the eastern Corn Belt is better than reported, and will easily reach record size. At the same time, there are thoughts the corn crop in the western Corn Belt is smaller than thought, and we will see a reduction in final crop size.

The real surprise in total crop size may come from the fringe areas of the Corn Belt, where field scouts are reporting above-normal potential as well.

One factor that could greatly influence final corn production is quality.

According to the latest U.S. Department of Agriculture numbers, this year’s ear count is the third highest in history. Ear weight is being reported as just below-average though, which could make up for the higher ear population. What would be most devastating for corn quality would be an early frost, which could impact up to 1 billion bushels of production given current maturity.

The truth on corn production is, however, that even at the low end of trade estimates, the U.S. corn supply will grow. The USDA is projecting the national corn yield at 154.4 bushels per acre and new crop carryout at 1.8 bb.

Even a four-bushel drop in corn yield would still equate to a 1.4 bb carryout. The worst case scenario in corn right now would be if yield and harvested acres drop substantially from current estimates, but most analysts find this unlikely to happen.

Corn offerings from the United States remain some of the highest in the global market. Right now corn can be booked from South America or the Black Sea for 50 to 65 cents per bushel less than from the United States.

This is a good indication of the down-side potential in corn to become competitive in the global market. At the same time logistics favor doing business with the United Sates, especially over South America.

There are analysts who believe we may see an increase in distiller’s dried grain demand in the domestic market this year. This is mainly from the low hay stocks in the country.

U.S. hay stocks are down 34 percent from a year ago, and the lowest in history. As a result, cattle feeders are taking DDG and mixing it with products such as corn stover to be substituted into cattle rations instead of hay.

Trade continues to compare this growing season to previous ones. This is especially the case in soybeans. This year’s soybean crop is rated much higher than last year’s, given the indication yields could be considerably better. Last year the Corn Belt received heavy rains in August though, which raised yields prior to harvest.

Conditions are dry across the Corn Belt this year, so despite the higher rating, yields could average no more than a year ago.

In the main corn and soybean producing states of Iowa, Illinois, and Indiana, this August is likely going to go down as the second driest in history.

In related Augusts with dry conditions, final soybean yield was down from one-half to five bushels from trend. Even the low end of this range is more soybean yield than the U.S. can afford to lose.

The state of Iowa is suffering from the driest conditions, where August rainfall averaged less than one inch.

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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