Retreat in yield projections stuns market

By JASON SAGEBIEL | November 15, 2010
The USDA put a wow factor in the market the day the Oct.10 supply and demand report was released reducing national yield by 8.9 bushels per acre—well below traders' expectations—dropping production 496 million bushels from the previous projection. The demand table was slightly altered as feed demand and export figures declined, due to price rationing. Remember that corn ending stocks were increased at the end of September, which offered some cushion to the punch the USDA delivered Oct. 8. Nonetheless, the December corn contract was 25+ cents higher the day the report was released and traded to a contract high of $5.88 just days later.

The market will remain volatile going into the winter, with the international market adding to domestic trends. Any perceived production issues during the Brazil or Argentina growing seasons will be a catalyst for a bullish tone in Chicago. Domestically, many producers oversold their corn crop, have plenty of cash and may be more willing to hold onto bushels until after the new year. What does this mean for an ethanol plant or any end user? Basis will be the next piece of the puzzle that will begin to encourage grain flow. The cash market will be short this year, especially in the ECB, and basis, flat price and spreads will need to do the work to get corn to move. Despite the corn market rallying, ethanol prices responded as production margins increase.