Market Perspectives – August 18, 2022

Chicago Board of Trade Market News

Outlook: December corn futures are down 26 ½ cents (4.1 percent) this week as a cooler, wetter forecast for the U.S. Midwest plus rains in the EU assuage yield concerns. The August WASDE was in-line with analysts’ pre-report expectations and offered comparatively few surprises. U.S. basis levels are starting to weaken as the harvest begins in the South, but mixed yield results may provide a boost to cash can futures values going forward. The market will also be watching the results of crop tours across the Midwest that will offer additional clarity to USDA’s August yield estimate.

As expected, the August WASDE featured a modest cut to the U.S. 2022 yield forecast based on dry conditions in the western Corn Belt. USDA pegged the yield at 11.01 MT/ha (175.4 BPA) last week, which was in-line with expectations. USDA also shaved off 0.11 percent of its planted and harvested area estimates, which put the 2022 crop estimate at 364.74 MMT (14.359 billion bushels), down 3.71 MMT (146 million bushels) from its prior estimate.

On the demand side of the U.S. balance sheet, USDA left both its 2021/22 and 2022/23 ethanol grind forecasts unchanged, though many analysts had predicted an increase in the old crop grind estimate. USDA cut 2022/23 feed and residual use by 0.64 MMT (25 million bushels) and lowered its corn export forecast by an equal amount. Total new crop corn use was lowered 1.14 MMT (45 million bushels), which left 35.26 MMT (1.388 billion bushels) in new crop ending stocks. The ending stocks projection was down 2.08 MMT (82 million bushels) from the July estimate, based on the smaller U.S. crop.

Internationally, USDA predicted the drought in Europe, which has been called a “100-year drought”, would cut the EU corn yield by 11 percent. USDA’s yield forecast for the EU came in at 6.66 MT/ha, down from the July estimate of 7.5 and the 2021 crop’s yield of 7.68 MT/ha. The EU corn crop was pegged at 60 MMT, down 12 percent from last month’s estimate. USDA consequently cut the EU demand side of the balance sheet, including a 3 percent cut to exports, and increased the region’s 2022/23 corn import forecast to 19 MMT, up 19 percent.

Conversely, USDA increased Ukraine’s 2022 corn yield forecast by 20 percent, though the forecast 6.6 MT/ha yield is well below last year’s 7.67 MMT forecast. USDA also increased the Ukrainian corn export forecast by 40 percent to 12.5 MMT, though has volume is half the 24.5-MMT 2021/22 export program.

In total, USDA’s projection for the world corn balance sheet called for smaller production, modest reductions to global consumption, and smaller ending stocks. USDA forecast a 6.3-MMT reduction in the world’s 2022/23 crop, cut world feed use slightly, and increased world trade by 1.5 percent. World corn ending stocks fell 6.2 MMT To 306.68 MMT.

U.S. corn exports continue to see declining interest in the old crop market with the new harvest just around the corner. Net export sales for the 2021/22 crop were down 48 percent from the prior week while exports slipped 12 percent to 0.623 MMT. YTD bookings now total 60.949 MMT, which is 98 percent of USDA’s latest projection. New crop corn export sales surged 292 percent last week to 0.75 MMT and outstanding sales now total 8.798 MMT.

From a technical standpoint, December corn futures are pulling back from last Friday’s post-WASDE high as rains in the U.S. and Europe ease yield concerns. Corn futures have drifted steadily lower since the WADSE but seemed to catch a bid early Thursday near $6.00 and strengthened heading into the close. The market remains range-bound and in a sideways trading pattern with initial support at $6.00 and resistance at the 200-day moving average ($6.28). The lingering droughts in the central U.S. and Europe should continue to support values, though current yield expectations are already well-priced into the market. At the same time, the approaching northern Hemisphere harvests will pressure rallies, so choppy, volatile, but mostly sideways trade remains the probable outlook.