The USDA has revised its corn yield estimate to the lowest level since 2005, at 148.1 bushels per acre, in the September production report. Even with this low yield, the United States is expected to raise a 12.5 billion-bushel crop. The USDA did cut several uses on corn though, including 100 million bushels from ethanol, to leave carryout at a tight but adequate 672 million bushels.

The soybean data from the USDA were perceived as negative by many traders, as yield came in above trade estimates, at 41.8 bushels per acre. This should increase the nation’s soybean crop by 1 percent from the August report, to 3.05 billion bushels. Minimal changes took place to soybean demand to leave carryout at 165 million bushels, which is still just a 2.5-week supply.

The world balance sheets on corn and soybeans were more negative for trade than the domestic ones. Global corn ending stocks increased 3 million metric tons (mmt) to a comfortable 117 mmt in the September report. The global soybean carryout was also negative at 62.6 mmt, a 2 million-ton increase from August.

Some trade economists do not believe enough rationing has been done on old crop corn, and the U.S. will cut its new crop carryout on that grain even further next year. This may not be correct though, as in the year 2008 when the U.S. experienced similar supply and demand circumstances, it needed to eliminate 7 percent of corn use for a comfortable carryout. This year the U.S. only needs to drop demand by 4 percent, and the case can be made that this is already done.

Another factor tempering the bullish story in corn is that we are now in a global market. This means the U.S. is no longer the focal point of the market, and more interest is being placed on other countries that produce corn.

One the main one of these is Argentina, which claims its corn production will increase 9 percent this coming year. Another region being closely watched is the Black Sea, as Ukrainian officials have already lifted export duties on corn in anticipation of heavy sales.

Market analysts seem to be underestimating the amount of pressure the United States could see from feed wheat this year. There is constant talk in the market of feeders in the southeastern U.S. booking feed wheat from both Canada and the United Kingdom.

There is also talk of livestock feeders in South America buying feed wheat in an effort to stretch domestic corn supplies. The combination of these two factors means global corn stocks are unlikely to drop as far as many economists predict.

An unknown in the ethanol industry is what impact the removal of federal subsidies will have on profitability. Some economists claim this measure will not affect production at all, as payments are made to blenders, not manufacturers. While this is true, many blenders pass a portion of their subsidy back to the manufacturers. In some cases, this is the only positive cash flow plants see.

Trade attention on global weather is again rising. This is not only from the possibility of harvest delays and early frosts in the Upper Plains in the U.S., but also from the start of planting in South America.

Forecast models still indicate the redevelopment of the La Nina system that affected crop development in South America last year, especially in Argentina. If this region is again impacted by drought, it could further restrict already tight global grain balance sheets.

Karl Setzer is a Commodity Trading Advisor/Market Analyst at MaxYield Cooperative. His commentary and market analysis is available daily on radio, in newsprint and on the Internet at www.MaxYieldCooperative.com

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.