"It appears that corn use for ethanol and co-product production will reach the USDA projection, but declining transportation fuel consumption and the delay in implementing E-15 suggests that the so called 'blend wall for E-10 is rapidly approaching," said Good.

Ethanol exports will have to remain strong for ethanol production and corn use to reach the current projection for the year. Brazil has become a major importer of U.S. ethanol over the past year.

Good noted that, ironically, U.S. ethanol imports from Brazil may also increase as Brazilian ethanol qualifies as an advanced biofuel under the Renewable Fuel Standards while U.S. ethanol does not. "The result would be the very inefficient swapping of ethanol between the two countries," he said.

There is still uncertainty about the ongoing level of feed and residual use of corn and the implications for year-ending stocks. Last week, we noted that the March Grain Stocks report will provide for an estimate of feed and residual use during the December-February quarter.

Prospects for feed and residual use of corn during the summer quarter will be influenced by animal numbers as reflected in the monthly Cattle on Feed reports, monthly estimates of milk cow numbers, weekly broiler placements, and the March 30 Hogs and Pigs report.

The estimated size of the upcoming wheat harvest and resulting prices may also have some impact on the estimates of feed demand for corn this summer.

The pattern of strong basis and inverted futures market prices described last week continues and has intensified in recent trading sessions. The expiring March 2012 futures contract is a 14 cent premium to the July contract, compared to the 5 cent discount at the end of February.

It is still not clear if the strong basis and inverted futures market signals a shortage of corn, tight holding, or both.

Anecdotal information suggests that a large portion of current inventories of corn are owned by farmers as other commercials have given up ownership in response to the lack of carry in the market. The estimate of March 1 stocks will reveal where stocks are being held, but will not reveal ownership of those stocks.

The estimate, along with revealed rate of consumption over the next several weeks, will determine how much strength in old-crop prices is needed to stretch inventories until harvest.

"Expectations remain for a much larger crop and lower prices for the 2012-13 marketing year," said Good.