The revised corn carryout total of 801 million bushels in the February USDA supply and demand report was a 45 million-bushel reduction from January. This drop in ending stocks was mostly from increased export potential.

The global corn stocks totaled 125.35 million metric tons (mmt), a 3 million-ton decrease from January, mainly from yield loss in Argentina. This volume of world corn is a 53-day supply given current usage.

The soybean numbers were less impressive, as projected carryout was left unchanged from January at 275 million bushels. No changes were made to soybean exports, which was a little surprising to trade. The global soybean inventory now stands at 60.28 mmt, a 2.5 million-ton decline from the previous month. This is an 85-day supply of soybeans.

The most attention going in to this report was on the global production numbers, especially South America’s. The USDA did cut the Argentine corn crop 2 mmt due to ongoing drought. This leaves Argentina’s corn crop at 22 mmt though, which is still larger than what several private analysts thought it would be.

The USDA also reduced Argentina’s soybean crop by 2.5 mmt and the Brazilian soybean crop by 2 mmt.

One of the greatest unknowns in the commodity market remains ethanol production and the impact it will have on corn usage. At present the USDA is projecting 5 billion bushels of usage from ethanol manufacturing.

Several analysts feel this number will be higher though, some as much as 200 million bushels. Others feel ethanol demand will drop, however, once the impact of the blender credit loss is felt in the industry.

The loss of the federal blended credit for renewable fuels is starting to show up in demand. For the past several weeks ethanol production in the United States has been on a steady decline.

What is more concerning is that stocks have been increasing even with this reduced output. Some analysts now think we will see a steady corn use for ethanol at best in future supply and demand reports.

One factor that could substantially impact the ethanol industry is Brazilian production. Brazil manufactures ethanol out of sugar, and a larger sugar cane crop means fewer imports. At the present time Brazilian ethanol imports from the United States consume just over 350 million bushels of corn. Even a partial loss of this output will cause a build in corn reserves.

Brazil is also going to increase its ethanol manufacturing capacity by 10 percent over the next two years, further eliminating the need for imports.

Trade is getting mixed signals from the Chinese market. Soybean exports to China are forecast to total 2.66 mmt in February, which would bring the total for the marketing year to 22.9 mmt. This would be a 3.5 percent increase from the same period a year ago. While this is an increase, it is well short of the 8 percent growth in soybean sales that was projected by the USDA.

Corn loadings to China this marketing year are running well ahead of last year’s pace. Through Jan. 20, China imported 2.2 mmt of corn. This compares to 313,000 metric tons for the same period a year ago. China has recently shown more interest in alternative products such as feed wheat and distillers dried grains, which may slow this corn demand.

Concerns are being voiced over what would happen to the U.S. shipping industry if the nation’s aging infrastructure would fail, mainly one of the locks on the Mississippi River. A recent study shows a failure of one of these locks would cost U.S. farmers between $900,000 and $45 million in weaker grain bids.

If this system were shut down for just three months it would cost farmers $71.6 million in lost revenue. These losses are from the fact more grain would have to be shipped via rail and truck, which is more costly than barge.

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.