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Outlook: The market survived two major surprises this week between Trump winning the U.S. Presidential election and the USDA coming out with an unexpectedly bearish WASDE report. Earlier in the week, commodity markets and their equity counterparts confidently closed higher on Tuesday, sure of a Clinton victory. Tuesday night, however, the overnight trading quickly turned negative as the prospects of a Trump Presidency became increasingly clear and were then confirmed. Despite the initial shock, markets rebounded in the morning and recovered much of their losses. It was at that point, however, when the USDA announced that there is even more corn out there than was originally thought. Corn futures tanked immediately and closed just barely above their daily low on Wednesday.
Perhaps the biggest surprise in the WASDE was the 1.1 percent increase in the U.S. corn yield. Traders had expected a slight reduction in the yield but USDA increased the figure by 1.9 bushels per acre to 175.3. Of course, the increased yield translated to larger production and the previously forecast record high production was increased 169 million bushels to 15.226 billion bushels. All in all, total corn supplies in the U.S. are up 10 percent from last year. Remember, the December WASDE does not include any yield updates so the November numbers are “it” until the final production numbers are published in January.
The USDA also gave the market some surprises on the demand side, specifically, leaving the corn export forecast unchanged from September. Most market participants anticipated at least a mild increase due to the strong export pace observed so far this marketing year. However, USDA left the figure unchanged due in part to larger exports forecast for Ukraine and Russia. Corn used for ethanol was increased 1.3 percent from the last report while feed and residual use was left unchanged. In total, U.S. corn use for the 2016/17 MY is forecast at 14.610 billion bushels, up 7 percent from the prior year. Production, of course, is outpacing demand this year and ending stocks were pegged at 2.403 billion bushels, up 3.6 percent from the September forecasts and up 38 percent from one year ago. The ending stocks to use ratio stands at 16.45 percent, up nearly 4 percent from one year ago. Despite larger production and ending stocks, the USDA left its farm-gate price forecasts largely unchanged for 2016/17, citing the higher-than-expected prices already received so far this marketing year.
December corn futures are one month away from rolling off the board and are largely predestined to trade sideways until then. The election/WASDE chaos pulled corn futures from their recent highs but failed to make notable penetration of the uptrend underpinning recent price activity. Thus, it is difficult to say this week’s news will turn corn to a bear market, though the fundamentals are hardly bullish. December corn now has little reason to trade above $3.60 and a test of this point is unlikely Also unlikely is any downward move to $3.35 or lower and the December contract will largely be a swing trading market with rallies promptly sold and breaks promptly bought.