For the September USDA WASE report the trade was looking for the USDA to lower corn yield a little more than 2 bushels an acre. The USDA did lower corn yield, but only 1.3 bushels an acre, less than trade expectations. However, corn was still able to manage an almost 13 cent rally after quickly making new lows. Why did corn have a bullish reaction to a seemingly bearish yield estimate?
While the USDA's
September yield estimate for corn was less of a reduction than the trade
had expected it was still a reduction nonetheless. This could be
signaling that this is a trend where the USDA is now going to lower corn
yield even further on subsequent reports. And, while the corn yield
estimate came in higher than expectations the more important number -
new crop carry over - declined more than expectations. This is where
the bullish reaction likely came from.
trade was looking for the new crop corn carry over to come in at just
over 1.6 billion bushels and the USDA pegged it at 1.592. This
represents a fairly substantial reduction from where the USDA was at
last month at 1.713 billion bushels. Most of this reduction came from
the old crop corn carry over (or beginning stocks) meaning that there
will be less of last year's crop to take into the new year. this is
bullish for corn because it suggests that corn demand is stronger than
expected and also could suggest that strong corn demand could carry over
into the next marketing season.
At the end of the day the market
read this report as bullish with yield numbers beginning to come down
and demand staying relatively constant. This could be the recipe for
even smaller corn stocks in the future. However, the time frame is
something to consider as we gear up for harvest. While most of the
trade thinks that corn yields could be lower (maybe substantially lower)
than the USDA's estimate there may still be a lot of cash corn sold in
the coming weeks and this could add some pressure to the market.
Longer term the corn outlook may be getting more positive on a few
levels, but harvest pressure could keep things volatile in the near
Dec Corn Daily chart:
Nov Soybeans Daily chart:
Dec Wheat Daily chart: