The latest supply and demand report from the USDA has changed the entire outlook of the commodity market. For the past several months the commodity market has been demand-driven, which means buyers are usually forced to push for coverage.

The market is now more supply-driven, following the USDA’s increase to crop size and carryout projections. This allows buyers to be more reserved in their bids, as there is less chance of running out of inventory.

Trade has started to shift more of its attention from global weather to U.S. outlooks. This is from the fact that in as little as six weeks, planting could be under way in the Southern Corn Belt. A large area of the Western Corn Belt and Plains remains in a drought, and is in desperate need of moisture if there is any chance of raising normal crops. At the same time, we will start to see an addition of risk premium to commodity values.

Flooding that impacted the United States last year is still affecting agriculture, and likely will for some time. Not only did these events carry sediment and trash into fields, but they also brought large amounts of silt south, which has begun to restrict shipping channels.

Minimal precipitation across the Midwest has made the low water on rivers such as the Mississippi even more of an issue. Until rivers and channels can be dredged, the U.S. export market will be affected.

Some analysts are using the lack of snowfall this winter as an indicator of a future drought. While the lack of snow pack does reduce soil moisture, it is not to that great an extent. What moisture is being received in the Midwest is also making its way right into soil rather than running off.

Trade is also aware of the fact that one big rainfall in the spring can do more benefit to dry soils than any amount of snow can.

Another weather story trade is monitoring is the ongoing La Nina event. La Nina is now forecast to last into the spring planting season. While this may be true, indications are the system is not strengthening, and could be ready to subside.

This could lead to early plantings in the United States, followed by a more normal growing season. Still, there is enough conflict in the market given current balance sheets to hold weather premium in all values.

Some forecasters believe the La Nina will break down and turn into an El Nino. These events tend to lead to above-trend corn yields in the United States, which is only adding to today’s market volatility.

The ethanol industry is disappointed in the Renewable Fuel Standard for 2012. In the initial writing of this plan, which outlines projected renewable fuel production, it was stated cellulosic ethanol manufacturing will total 500 million gallons by this year. In the revised proposal, cellulosic ethanol manufacturing for 2012 was lowered to just 8.6 million gallons.

This has some analysts questioning the viability of cellulosic ethanol on the whole.

Analysts are predicting record world demand for fertilizer this production season.

According to the International Fertilizer Industry Assoc., world demand for fertilizer will increase 3 percent this year to 178.2 million tons.

This increase is from the growth we are seeing in production agriculture, as well as improved farming practices in countries such as Brazil and China. The greatest increase in demand is forecast for nitrogen, as more countries try to become self-sufficient on corn production.

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.