Chicago Board of Trade Market News
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Outlook: At the USDA Ag Outlook forum this morning, USDA Chief Economist Rob Johansson gave the organization’s current 2017 outlook for U.S. crops and livestock. The USDA pegged the 8-crop acre figure at 249.8 million in 2017, down 1.4 percent from last year, while corn acres are estimated at 90 million, down 4 million (4.3 percent) from 2016. These initial estimates may be low, as history suggests, but they confirm much of the market’s feeling: that corn acres will fall in 2017.
The fall in corn acres is largely driven by the economic situation for row crop farmers, especially the current corn/soybean price ratio. Currently, soybean prices are 2.6 times greater than corn and this profitability dynamic is pulling acres away from corn. However, USDA did raise the U.S. average, on-farm corn price 10 cents to $3.50 per bushel. The move is partly driven by increasing feed demand for corn (red meat and poultry production is set to grow 3.1 percent this year) and partly by a solid outlook for corn export demand.
If the forecasted 90 million acres of corn planting will be realized, when combined with the typical harvesting of 92 percent of those acres and a trendline yield, U.S. corn production for 2017/18 will be near 13.9 billion bushels. Despite low corn prices, this seems too low a production forecast and USDA will likely increase planted area estimates in future reports.
One key factor for the corn crop this year will be, as it always is, the weather. Interestingly, ocean temperatures are currently such that predicting the summer weather is going to be more difficult this year. The Pacific La Nina event has ended and the U.S. Climate Prediction Center recently raised the odds of an El Nino event occurring in 2017 to 50 percent. Currently, Pacific Ocean conditions are so close to “normal” that meteorologists’ ability to forecast summer weather is being hampered. Accordingly, the USDA is likely to leave their estimate of 2017/18 U.S. corn yields at trendline (or “normal”) values for the time being.
Corn futures have come under pressure during this holiday-shortened trading week. The March contract fell 5.5 cents Thursday as Brazilian production estimates came in higher than expected. The Brazilian weather has been favorable and Brazil’s private analysis firm AgroConsult pegged the nation’s production at 93 MMT, which if realized would be a 39 percent year-over-year gain. Such a large crop from the largest competitor to U.S. corn exports could add financial difficulty to much of the American farm economy.
From a technical standpoint, corn futures are correcting this week by falling back to their trendline. Support at the 40-day moving average has been found and, if it continues to hold, offers upside potential for the contract next week. Still, barring any weather events, the outlook for corn is a slow, uphill battle in which gradual improvements in demand will outweigh a large supply scenario.