Chicago Board of Trade Market News
Outlook: Big crops get bigger. USDA proved that adage to be true once again in the September WASDE report. Despite expectations to the contrary, USDA increased the U.S. corn yield, along with production and ending stocks. The report was entirely bearish for corn and the futures market responded in kind, losing 12 cents in short order. However, the market closed well above session lows and bullish signs are emerging around the globe.
USDA’s yield increase was based on higher ear counts in key states but lower ear weights. USDA pegged the U.S. average corn yield at 169.9 bushels per acre (BPA), an increase of 0.4 BPA from the August report. If realized, this would be the fourth largest yield in the past 10 years.
The increased yield boosted USDA’s production estimates by 31 million bushels to 14.184 billion (360 MMT). This is the third highest production figure since 2012, behind last year’s record 15.148 billion bushels (385 MMT) and 2014/15’s 14.2 billion bushels (360-plus MMT). Despite a 25-million bushel increase in Feed and Residual use, the rest of USDA’s adjustments to the U.S. balance sheet were bearish, including a 25-million-bushel reduction in corn for ethanol. In total, 62 million bushels were added to 2017/18’s carry out figure, 2.335 billion bushels, leaving a 16.4 percent ending stocks/use ratio.
Despite the pronounced bearishness of the U.S. supply and demand situation, bullish elements are showing in parts of the globe. Notably, excessive rains in Argentina are increasing the likelihood that as much as half the country’s corn and soybean area might remain unplanted. USDA expects Argentina to produce 42 MMT of corn in 2017/18 and large production reduction from the world’s third largest producer would certainly be bullish.
From a technical perspective, December corn is still in a downtrend but has found considerable support at $3.44-3.45 and may be forming a double-bottom chart formation. Funds were slightly short before the WASDE report but may be slowly building long positions with corn near multi-year lows. December corn closed near the midpoint of its trading range on the WASDE release day, which hints there are hidden bullish factors at work despite the WASDE’s bearish tone. The 20-day moving average has been a significant resistance point for the market in recent weeks and today’s close was just below this point. Should the market sustain a close above this point with decent volume, it may signal harvest lows are established and demand prospects could lift the market higher.