Chicago Board of Trade Market News
Outlook: The release of USDA’s August yield and production data was considered bearish for feed grains because the estimates exceeded pre-report expectations. The average corn yield estimate given by market analysts prior to the release of USDA reports was 164.4 bushels per acre in a DTN survey, moderately below USDA’s July estimate of 166.8 bpa. However, the average U.S. corn yield estimate within USDA’s August data was 168.8 bpa, slightly above USDA’s July estimate. As well, the estimate for harvested U.S. corn acreage was left unchanged. The result is that the ending stocks estimate for U.S. corn in the soon-to-arrive 2015/16 season (beginning September 1) increased from the July estimate of 1.599 billion bushels to 1.713 billion bushels. This surprising increasing in U.S. corn stocks resulted in a sudden, sharp sell-off in the price of corn futures contracts.
The August data was presumably a disappointment to a large pool of speculators who held long positions in corn and were looking for justification to drive prices higher. The exiting of their long positions could weigh upon corn contracts for a limited time; However, there is little other fundamental justification to drive corn contracts lower once that activity ends for the following reasons: First, USDA’s current corn ending stocks estimate for the 2015/16 season of 1.713 billion bushels is still below the ending stocks estimate for the current 2014/15 season of 1.772 billion bushels, which had a low price of $3.1825/bushel in the nearby corn futures contract on October 1, 2014. At that time, USDA was projecting an ending stocks estimate 2.002 billion bushels and a stocks-to-use ratio of 14.7 percent. Eventually, the ending stocks estimate for the 2014/15 season declined down to the present estimate of 1.772 billion bushels and the stocks-to-use ratio fell to 12.9 percent. However, the recently increased ending stocks estimate for the 2015/16 season of 1.713 billion bushel has a stocks-to-use ratio of 12.4 percent, both of which are still below last year’s final levels. Stated differently, there seems little reason for corn futures contracts to fall back to the depth of last season’s lows.
Secondly, the projected ending stocks among global corn exporters is projected to decline by approximately 13.5 percent in 2015/16, and the coarse grain ending stocks of major exporters is expected to fall by more than 20 percent in that same time period. Demand to acquire ownership of inventory will likely grow as such factors become increasingly apparent to feed grain end-users while prices are low. There are several influences to consider, but the current French corn crop is down substantially, and while a stronger U.S. dollar can benefit the returns of South American farmers by means of the exchange rate, such a condition does not help them cover their increased costs of production for a crop that requires substantial inputs such as corn. In summary, the long-term outlook is that perceptions may change considerably in global feed grain markets during the 2015/16 season.