Market Perspectives – November 8, 2018

Chicago Board of Trade Market News

Outlook: December corn futures are up 6 ¾ cents (1.8 percent) this week, following up the USDA’s initially bearish WASDE with a modest close higher. USDA surprised the market by tripling China’s 2017/18 and 2018/19 corn ending stocks, which led to growing world ending stocks. USDA’s U.S. balance sheet amendments were bullish but largely outweighed (at least in the short-run) by the China news. Going forward, there are some converging bullish factors that should keep futures grinding higher.

The November WASDE was expected to feature limited changes, but USDA’s increase of 2018/19 Chinese corn ending stocks by 255 percent to 207.5 MMT hardly followed that expectation. The latest WASDE suggests China has a 75.2 percent ending-stocks-to-use ratio. Despite the large increase in stocks, USDA also increase China’s corn import figure by 2 MMT, which hints at the fact that a portion of China’s corn stocks simply aren’t useable. The market seemed to realize that China’s newly-tripled corn stocks aren’t really a threat to global prices/trade flows, and soon returned to trading other factors around the world.

In the U.S., USDA lowered 2018/19 corn yields by 1.8 BPA to 178.9, which cut production by 3.861 MMT (152 million bushels) to 371.52 MMT (14.626 billion bushels). USDA decreased feed and residual corn use by 1.270 MMT (50 million bushels) while lowering the export forecast 635 TMT (25 million bushels) to 62.233 MMT (2.45 billion bushels). The net impact on U.S. 2018/19 corn ending stocks was a 1.956 MMT (77 million bushel) reduction, which leaves a 11.5 percent ending stocks/use ratio (the same as the last WASDE). USDA increased the midpoint of its expected U.S. farm-gate corn price by 10-cents/bushel.

Around the world, USDA made no changes to Brazil’s 2018/19 corn supply/demand tables and made only modest adjustments for Argentina. USDA increase Ukrainian corn production and ending stocks after data from that country showed higher-than-expected yields while leaving exports constant. USDA lowered EU production 1.5 MMT and increased imports by an equal amount, leaving demand-side factors unchanged.

U.S. sorghum yields were cut 5 percent in today’s report; USDA increased feed and residual use 29 percent (762 TMT or 30 million bushels). Sorghum exports were cut by 1.27 MMT (50 million bushels), which left 991 TMT (39 million bushels) of sorghum in ending stocks. USDA increased sorghum prices 10 cents/bushel. USDA did not make any changes to 2018/19 barley or oat balance sheets.

Before this week’s WASDE, USDA’s weekly Export Sales report was once again neutral for the market. Weekly sales slipped to 0.895 MMT while exports were 1.355 MMT. YTD bookings have slipped to 16 percent of last year’s values even as YTD exports are up 85 percent.

Going forward, exports will be the key driver for the corn market. USDA has helped the market by trimming 2018/19 production and ending stocks, which will help make prices more responsive to exports. The U.S. Dollar Index is lower after the U.S. midterm elections but remains near its highs for the year. If the dollar falls and makes U.S. exports even more competitive, corn futures have plenty of potential to move higher.