Corn market focused on big crop

By Jason Sagebiel, INTL FCStone | September 26, 2016

Big yield expectations from the USDA put some pressure in the market, but are yields really that high?  The USDA released a July national yield of 175.1 bushels before easing in August to 174.4.  If realized, this would still best the record yield by 3.4 bushels per acre. However, one should step back and examine the overall impact. Each one  bushel deviation would impact supply and potentially carry-out by 87 million bushels. The USDA’s current carry-out projection is 2.384 billion bushels.  Leaving demand unchanged, a reduction back to the previous 171 record would still net a carry-out above 2 billion bushels.

Feed demand is expected to consume 5.650 billion bushels, an increase of 450 million bushels.  This-old crop figure will be revised Sept. 30th in the USDA Quarterly Stocks Report.  Many analysts believe the current feed number is lofty given Grain Consuming Animal Units have grown by 1.3 percent (much less than the 8.7 percent increase in feed demand) and wheat has the potential to work its way into more rations given their massive domestic stocks and low prices. Corn for export is expected to be 2.175 billion bushels, an increase of 260 million bushels, which would be the largest since 2007. Realization of exports will depend on South American production this winter and how the US Dollar trades during this marketing year, but given Brazil’s shortage of corn, export demand should remain strong.  Finally corn demand into the ethanol sector is expected to consume 5.275 billion bushels, a small increase from 5.200 billion bushels in 2015/’16.  However, one thing to note about corn exports; the industry exports equivalent to an addition 320 million bushels of corn in the way of ethanol. 

Forward USDA reports will be of focus.  Today’s analyst bias leans towards a slow decline in corn yields while soybean yields slowly grow.  The market will eventually turn its focus to demand, especially in the soy complex. In past years, soybean demand has consistently grown over the course of the marketing year and has the potential to support corn values as the investable acreage battle ensues next spring.

Comments in this article are market commentary and are not to be construed as market advice.

December corn futures


Dec futures

Close in bushels

Close in tons

9/26/2016

 $                3.2900

 $               117.50

8/26/2016

 $                3.2500

 $               116.07

9/25/2015

 $                3.8900

 $               138.93