The only commodity to have noticeable changes in carryout in the December USDA supply and demand report was soybeans. The USDA reduced both crush and exports on soybeans, which raised ending stocks to a comfortable 230 million bushels. This was 16 million bushels above trade estimates.

Corn carryout only increased 5 million bushels, to 848 million, but was also above trade expectations.

Global supply and demand numbers were unfavorable for both corn and soybeans. Global corn carryout is now estimated at 127.2 million metric tons (mmt), up 5.5 mmt from the previous estimate. World soybean ending stocks increased 1 mmt from November, to now stand at 64.5 mmt.

These totals are still lower than a year ago, but given the fact they are climbing, trade still perceived them as negative.

The state of Iowa has just completed one of its driest stretches in history. Between July and Dec. 1 the state only received 10.9 inches of rainfall, 40 percent less than normal. By Dec. 1 nearly 75 percent of the state was experiencing drought conditions.

In previous years with limited rainfall over this time frame, drought did affect the following year’s grain production. Several other states are also experiencing ongoing drought conditions, mainly in the Plains and Deep South.

For the past several weeks we have seen heavier corn movement than we have on soybeans. This is from producers coring out their on-farm storage in an effort to prevent quality issues later on in the storage season. Corn buyers have also allowed the early delivery of corn contracts in an attempt to avoid paying a premium for immediate deliveries.

We will now likely see elevated soybean deliveries through the end of the calendar year, as producers can move a smaller amount of grain and shore up their financials ahead of year-end.

Country movement of grain remains lighter than normal, though, and possibly will for the next several months. Producers have adequate cash flow needs, and are not in a position to make additional sales at this time.

Some of these individuals are also holding out for a possible summer weather rally in hopes of better bids. This is a risky move, however, as any indication of building corn and soybean inventories could easily cause a sharp drop in values as well.

Fewer-than-normal grain piles were made across the Corn Belt this harvest, which some analysts are taking as an indication of low grain supply. While this is true in some regions, it is not the case for the entire Midwest. Commercial terminals were as empty as they have ever been going into harvest, so more grain was stored inside than in recent years.

On-farm storage is also being built across the Corn Belt, and given the size of today’s bins, it means less grain needs to move into commercial storage to begin with.

When the United States ethanol industry loses its blender credits at the end of this calendar year, it may not impact profitability as much as feared. The majority of these payments were kept by fuel blenders, not manufacturers, so plants are receiving little if any subsidy at present. Several ethanol-importing countries claim their fuel needs will increase, which actually means more potential business for the United States.

It is quite possible that plants could become even more profitable even without subsidies, under this scenario.

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.