Chicago Board of Trade Market News
Outlook: USDA increased the latest estimate for the average U.S. corn yield to 169.3 bushels per acre (bu.) on Tuesday, November 10 2015. This was a larger-than-expected 1.3 bu. increase above the October estimate of 168 bu. The result is that the nearby December corn contract punched through and closed slightly below key support at $3.60 per bushel. The significance of this price level was noted two weeks ago as it was explained that the December contract is likely to receive strong support in that region because of a common interest among traders to purchase corn contracts from March 2016-onward at lower prices. At that time and again last week, end-users of corn were encouraged to consider creation of a purchasing plan should a buying opportunity present itself. All indications are that that opportunity has arrived.
U.S. sorghum ending stocks increased to 58 million bushels in USDA’s November data. This is a sizable 16 million bushel increase above the October estimate, and well above the previous two years. The increase happened because sorghum exports were reduced and the average U.S. sorghum yield was raised to 77.7 bu., up 2.7 bu. from the prior October estimate of 75 bu. The upper end of the estimate for the average farm price of U.S. sorghum was reduced by 45 cents, and that in turn is expected to encourage U.S. ethanol facilities to utilize more sorghum at the expense of corn. The outcome is that corn used for ethanol production was reduced by 75 million bushels (while sorghum increased 85 million bushels) and that contributed to the ending stocks of U.S. corn increasing to 1.760 billion bushels from the prior October estimate of 1.561 billion bushels.
USDA’s logic in the preceding chain of events makes sense, particularly if one assumes that pinching pennies is necessary for ethanol facilities that are operating with increasingly tight margins. However, those same facilities are also likely to consider the desires of customers who may favor consistency in feed products. Irrespective, ethanol facilities and all other users of feed grains seem to be currently presented with a favorable opportunity to extend coverage of future needs.