There is a definite division taking place across the Corn Belt, between where the good crops and bad crops will be. It is interesting to see that where crops are good, they are going to be excellent, but where they are poor, they are very poor.

This is more noticeable in corn at this time, as that crop is already maturing in many regions. The soybean crop appears to be more even, especially in the Western Corn Belt.

Weather continues to play a role in today’s commodity market, primarily in soybeans. Moderating conditions will do little to improve the corn crop, but soybeans can easily benefit.

Another weather story comes from forecasters who are calling for an early frost in the Midwest this year. Normally this would receive more market attention than it currently is.

This year’s crops are progressing at a rapid pace, and we will likely see a substantial amount of harvest prior to the period when even an early frost would be an issue. An early frost may actually benefit some farmers, as it would cool soils far enough for fall fertilizer application.

This year’s drought is going to impact more than just production agriculture. U.S. consumers are going to pay an elevated cost for food, as a result. According to research from the United Nations, food costs in July rose 6 percent, ending three months of declines.

There is little doubt that the cost of food, as well as anything else derived from grain, will continue to work higher if futures remain at current levels.

We are starting to see a shift in commodity market focus. For the past several months nearly all attention has been on production, which is not uncommon during the growing season. Now that harvest is under way in Southern regions and soon will be in the entire Corn Belt, yields and usage become more predominant in price discovery.

There are beliefs in the market that new-crop corn consumption estimates could be up to 400 million bushels too low at the present time, and that without significant rationing, soybean inventory will be depleted by early spring.

It is interesting to note that open interest in March 2013 soybean futures currently totals 410 million bushels. At the same time, stocks by that time could dip below the 200 million-bushel mark.

Unless some of these contracts are offset – or, in other words exited – it will bring into question the viability of the Chicago Board of Trade as a useful marketing tool. This scenario could also cause a violent action/reaction in the futures market.

Trade continues to question what futures will need to rally to for price rationing to develop. For corn most economists believe futures between $9-$10 per bushel would halt demand. Futures lower than this have already weighed heavily on domestic demand.

Soybean futures may have to rally much more, though, given the fact the United States is the only supplier in the world able to make sales at this time. Economists claim it will take futures closer to $23 or $25 to slow that commodity’s demand.

U.S. corn continues to be pressured by cheaper feed wheat in the global market. At the present time, buyers can book feed wheat from sources such as India for $65 a ton less than U.S. corn.

South Korea, which is traditionally a predominant U.S. corn importer, is one buyer that has been taking advantage of this spread the most.

Wheat is also finding its way into the domestic market, mainly in Southern regions where it can be easily shipped down from Canada.

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.