Chicago Board of Trade Market News
Outlook: Last Friday’s WASDE report was surprising indeed. The report forecasted a national corn yield of 175 bushels per acre and production of 15.15 billion bushels. If realized, this would easily be the largest yield and crop on record. The report’s yield estimate is the first this year based on test plots and actual ear weights, rather than statistical forecasts. The record production forecasts brought USDA’s total supply estimate to 16.9 billion bushels, 9.8 percent larger than the 2015/16 crop.
Export forecasts were increased by 125 million bushels to 2.175 billion bushels given the tightness of Brazilian supplies. Despite 3 million bushels of increased total corn use for the year, ending stocks will swell to 2.409 billion bushels, a 40 percent increase over the 2015/16 crop. The forecast represents an overwhelming corn supply for the U.S. which will yield a largely negative financial tone for many corn farmers this year. The USDA lowered farm gate price forecasts for the 2016/17 crop year to $2.85-$3.45 per bushel.
Thursday’s export sales report was neutral-to-bearish with sales of 6.6 million bushels and shipments of 45.9 million bushels. The weekly figures mean this year’s exports will likely fall short of USDA’s projected 1.925-billion-bushel export volume for the 2015/16 crop. U.S. exports could continue their modestly strong activity of recent months into early 2017, however, given the demise of the Brazilian crop and tight supplies elsewhere in South America.
After the USDA’s record report, December corn futures closed higher for five consecutive days – a large divergence from what was expected. Many argue the trade had already factored a record yield into prices before the WASDE and now prices are working their way slightly higher as the market waits for confirmation of large yields. Additional support has come from significant strength in the soybean markets and from a lower U.S. dollar. More than likely, however, traders are simply somewhat skeptical the 175 bushel per acre yield will actually be realized and are pricing in a risk premium for now.
December futures were technically oversold before the report and this week’s higher prices may simply be a reflection of exhausted bearish sentiment. From a technical standpoint, December corn closed today just above the first key resistance mark of $3.4175. The next resistance will likely be found at $3.45 while support lies at $3.37 and again at $3.33 Farmer selling is still nonexistent but the U.S. national corn basis is slightly weaker than last week at $0.30 under the September contract with river terminals weaker and Gulf basis steady.