The quarterly grain stocks report from the USDA indicated a large amount of rationing has been done on U.S. corn. As of Sept. 1 the United States had 1.128 billion bushels of corn in storage, 200 million more than expected. Traders were quick to point out this was still the least amount of corn in storage on that date since 2003, and just a 4.5-week supply.

Soybean inventory was neutral, with 214 million bushels of inventory on Sept. 1, as was wheat, with 2.03 billion.

Trade is already starting to receive estimates on next year’s U.S. acreage intentions. According to most analysts, farmers will seed more corn, soybean and wheat acres this coming year. These are expected to come from the Conservation Reserve Program and from acres that were prevented from being seeded this year.

While these increases may be possible, several factors including input availability, profitability and weather conditions will alter actual plantings, same as they do every year.

Trade is closely monitoring the price spread between new crop corn and soybean values to help clarify possible plantings. At the present time the price ratio is almost 2:1, meaning it takes two bushels of corn to equal the value of one bushel of soybeans. This price spread is normally 2.5:1, and is an indication we may see more corn acres next production season.

Some economists believe this means the soybean complex will need to push values for acres next spring, but the declining demand we have seen on that commodity may negate this action.

One of the greatest unknowns in the market when predicting new crop acres is crop rotations. We have seen a trend in the U.S. of more corn-on-corn being planted as producers have been able to lock in higher returns on that grain. While this is true, continuous corn planting also reduces final yield by an estimated 10 percent, when compared to a corn followed by soybeans rotation.

A bill is being formed in the House of Representatives that would alter federal ethanol blend rate mandates. In the bill, when the stocks-to-use ratio on corn drops to 7 percent, the ethanol mandate would be reduced by 25 percent. If the ratio would tighten to 5 percent or less, the mandate would be cut 50 percent.

This proposal is gaining support, especially in states with high livestock production or little ag business on a whole. The amount of money the U.S. government pays out in ag subsidies has been declining. In 2009 the U.S. paid $34.1 billion in subsidies, but this declined to $25.5 billion in 2010.

By comparison, China’s ag subsidies increased 600 percent from 2008 to 2010 and totaled $147 billion. An estimated 7 percent of farm income in the U.S. is from supports, while 17 percent of China’s income is from government payments.

Agricultural subsidies are still a topic that will be addressed in the next federal budget. At the present time the U.S. needs to cut $1.5 trillion of spending over the next 10 years, and it is quite possible that ag will see at least some cuts. The most talked-about right now are the direct payments producers receive regardless of commodity values or yields. Economists also believe what payments farmers do receive will be reduced and capped at specific levels.

While it is well known the government needs to reduce spending, economists worry about being too harsh when it comes to ag subsidy removals. The concern from several groups is that food aid packages will be reduced, given the fact these account for 74 percent of the total ag budget. Supporters of these benefits claim that reducing payments in the current state of the U.S. economy would be a critical mistake.

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.