Chicago Board of Trade Market News
Outlook: The August WASDE held no shortage of surprises. Chief among them was USDA’s 2017/18 corn yield forecast of 169.5 bushels per acre (BPA). The trade had been expecting a much smaller yield, between 163-166 BPA, and today’s report was undoubtedly bearish. Moreover, 2017/18 ending stocks were only reduced by 52 million bushels to 2,273 million, leaving an ending stocks/use ratio of 15.9 percent. Combined with steady world corn ending stocks, the report left almost no room for the corn market to move higher until the September WASDE.
The USDA reduced its yield estimate by 1.2 BPA from the July WASDE, which when combined with no changes to harvested acres, pulled U.S. 2017/18 corn production down 102 million bushels to 14,153 million. USDA also reduced Feed & Residual use as well as its expectations for U.S. corn exports. The USDA now estimates 1,850 million bushels of corn will be exported this marketing year. Brazil’s large crop is putting pressure on U.S. corn exports but reports of that country’s bumper crop being stored in poor conditions may increase U.S. export opportunities later in the marketing year.
From a technical perspective, December corn passed a major milestone. The contract closed below $3.74, the major support point above which the contract has traded for most of 2017. With this support broken, the next downside target lies at $3.58 ½, the August 2016 contract low. From there, the next support point is $3.14 ¾, the August 2016 low on corn’s continuous monthly chart. Notably, USDA is still predicting farm prices between $2.90 -3.70/bushel this year, and these technical targets align well with the lower end of this range. Additionally, funds are still long corn futures, and should they decide to liquidate their positions, additional downside could be prominent. For now, December corn looks to be headed lower, unless unexpectedly strong demand appears.