A recent outlook from ag industry economists indicates higher input costs for this coming production season. The greatest increase in cost is expected to be seed, with a rise of 5-10 percent projected.

Chemical and fuel costs are also expected to be higher this year than last. Economists expect lower fertilizer values this coming year, though, which will help offset some of these other expenses.

The possibility of these higher input costs puts more emphasis on developing a strict grain marketing plan and sticking to it. Margins are becoming more critical in farming operations, and the windows for profitable grain sales are becoming narrower. If a producer has the opportunity to make a profitable grain sale in today’s market, they should be prepared to take advantage of it.

There are several market analysts who believe we will see larger corn demand numbers in future supply and demand reports. This comes from thoughts the USDA has been miscalculating ethanol and feed usage numbers this marketing year. The reduction we have seen to potential corn crop size in Argentina is also leading traders to believe we will see more demand for U.S. offerings in the global market.

While an increase in corn demand is quite possible, it may just be enough to offset the rise in carryout from previous supply and demand reports. The domestic use that is being most talked about for corn is feed usage. In the latest supply and demand report, feed demand dropped 11 percent on corn, which came as a total surprise.

Trade has been underestimating the use of distillers grains and wheat in feed rations, which is the main reason for the decline in corn consumption.

Another questionable corn use as we move forward is in ethanol manufacturing, as trade has no realistic way of knowing what the elimination of blender credits will have on the industry. Ethanol manufacturing has declined in recent weeks but is still on track to total 14.5 billion gallons for the year.

This is well above the mandated production of 13.2 billion gallons. What is more concerning is that ethanol stocks have been building, indicating usage is not keeping up with production.

The market is also receiving mixed indications on soybean demand from China. Chinese soybean imports in 2011 were down 4 percent from the previous year, the first decline in imports since 2004. The USDA is expecting China’s soybean imports to rebound this marketing year though, and climb 8 percent.

While this may be true, in December 2011 China imported 8 percent fewer edible oils, which already has some economists questioning actual demand.

Harvest is progressing across South America, and as it does, field scouts continue to reduce their crop estimates. Most field scouts claim losses will be similar to the 2008-09 crop year, when Argentina lost 43 percent of its corn and 30 percent of its soybean crop.

That same year Brazil lost 13 percent of its corn and 5 percent of its soybeans. These figures may be a little misleading though, as planted acreage is up this season, which could still generate large crop numbers.

A building concern in the corn market is the high level of the vomitoxin fungus in corn. Vomitoxin forms in years with abundant moisture and flooding during the growing season, especially in years with delayed harvests. So far this toxin has been confined to the Eastern Corn Belt, with the greatest outbreak in Ohio.

Vomitoxin levels are not as high as in the 2009 year, but are still at levels that are limiting the corn’s uses, mainly ethanol.

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 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.