Market Perspectives June 14, 2013

Outlook: USDA’s June 12 WASDE was considered mildly bearish for corn. There was a slight increase in the U.S. ending stocks estimate for the current 2012/13 season, as additional ethanol and other industrial corn use was more than offset by reduced exports and increased imports. As a result, the June estimate for 2012/13 U.S. corn ending stocks of 769 million bushels was 10 million bushels above the May estimate of 759 million bushels. The estimate for U.S. corn ending stocks for the approaching 2013/14 season (which will begin on September 1) was 1.949 billion bushels, and this was larger than the average trade estimate of 1.834 billion bushels. USDA did reduce its estimate for the average U.S. corn yield by 1.5 bushels to 156.5 bushels, but it did not adjust planted acreage from the initial March estimate of 97.3 million acres.

There is a common consensus that USDA will adjust down U.S. corn acreage in the June 28 Acreage report, but there is debate about the size of that reduction. The lack of surprising information in this week’s WASDE allowed corn futures to drift lower, as traders continued to exit long positions in the July contract. However, the cash basis remains strong and a protracted sell-off in futures prior to the June 28 Acreage report seems unlikely.

Depending on the content of the June 28 Acreage and Grain Stocks reports, the old crop/new crop spread could narrow if crop conditions for U.S. corn improve above the five-year average and the Acreage report does not show a larger than expected decline in U.S. corn planting. There is commonly a reluctance to sell aggressively before important USDA reports. As a result, the near-term outlook is that corn futures are likely to remain volatile during the next two weeks, and there is time for a limited sell-off and corresponding rebound in corn contracts prior to June 28.