Once again, trade was presented with bearish corn data in a government report. The USDA left corn yield unchanged in its October Supply and Demand report, at 148.1 bushels per acre. Crop size was cut 1 percent though, from a reduction to harvested acres of 500,000, but still totaled 12.43 billion bushels.

Even with this slight reduction to corn production, ending stocks increased 7 percent to a comfortable 866 million bushels, from declining demand.

The soybean data in the monthly release were more positive for trade. Soybean yield slipped 1 percent to stand at 41.5 bushels per acre. Trade believes this yield and 100,000 fewer harvested acres will lead to a soybean crop of 3.06 billion bushels, the smallest U.S. soybean crop in eight years.

The USDA also decreased soybean ending stocks from September by 5 million bushels, to a 160 million-bushel total.

The most negativity was in wheat, where the USDA increased carryout 160 million bushels. This was enough to drop the nearby wheat value back under that of corn. The impact of this may be a resurgence of feed wheat booked by countries that would normally use corn. A potential buyer most likely to do this is China, which is already stockpiling feed wheat for future use.

Future demand is being heavily questioned on corn. Livestock margins have turned negative because of herd liquidation from drought, which will take a long time to rebuild.

There are also concerns building over the fate of the ethanol industry if blender credits are removed. While manufacturers do not receive these payments directly, many receive a portion of them passed back from the blender. Without these, most U.S. ethanol plants will be facing negative returns.

What may be the greatest factor behind low corn demand is price. Many traditional U.S. corn buyers are looking elsewhere for their needs, including countries that normally do not export corn, such as India. This corn is being offered for $10 per ton less than U.S. corn, but freight discounts make it even more affordable. Several buyers are also more interested in wheat, which is $45 per ton less than U.S. corn.

Feeding of wheat may be a topic trade is underestimating this year. Chinese officials claim their country will increase the amount of wheat it feeds by 400 percent, offsetting a large amount of corn demand.

Wheat feeding in the United States is also expected to increase, and possibly top the previous wheat use record of 390 million bushels. This is 150 million bushels more than the USDA is predicting.

Trade is also questioning future balance sheets on soybeans. Some analysts predict final soybean yield may be two bushels per acre larger than current USDA estimates. If this is correct, soybean carryout could easily double unless we see a sizable increase in soybean demand.

Another factor of this increased soybean carryout is grain will not be forced to push for new crop acres, and we may see increased corn plantings by default.

A downturn in corn and soybean markets may actually be positive in the long run. We have seen commodity demand decline in recent months as values have rallied to record high levels. If corn and soybeans would now see a setback, at least a portion of this demand will likely return.

The longer it takes this correction to develop, the more demand the U.S. will cut, and the lower corn and soybean values will drop when they do reverse.

The latest data on U.S. dried distillers grain (DDGs) exports indicates shipments of that commodity are up 3 percent from the previous year. Analysts claim the U.S. market is saturated with DDGs, and the export market is the only relief to prevent an over-supply from taking place. Many countries are also using DDGs to blend with cheap feed wheat to make higher quality feed grain.

One of the greatest concerns with DDGs is that China’s demand is down 22 percent from a year ago, and future use is uncertain given recent developments over unapproved genetically modified corn production in the U.S.

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.