Corn rally changes ideas over key US crop report

The strength of the rebound in corn prices signals that a key crop report later on Wednesday may have trouble reversing the rally, and would require far higher crop estimates than analysts are counting on.

The US Department of Agriculture is expected, in its monthly Wasde report, to edge its forecast for the domestic corn yield 0.6 bushels per acre higher to 148.7 bushels per acre.

Factoring in a downgrade to acres, reflecting poor sowing weather, spring floods and an unusually hot July, the overall harvest is seen coming in at 12.471bn bushels – just above last year’s but 26m bushels below the USDA’s current figure.

"The assumption has been that a higher production number would be just devastating for prices," Jerry Gidel at North America Risk Management Services said.

And output hopes had been, in the main, trending higher, with anecdotal reports suggesting yields had proved less weak than farmers had feared.

Already baked in?

However, the extent of the last session’s rally – when corn closed up the exchange limit in Chicago, with the December lot adding a further 1% in pre-Wasde trade on Wednesday – appears to indicate far more latent buying pressure than any investors had believed, and lift ideas on what would needed to press corn futures significant lower.

Wasde forecasts – 2011-12 corn, diff from existing,  (and from 2010-11)

US production: 12.471bn bushels, -26m bushels, (+24m bushels)

US yield: 148.7 bushels per acre, +0.6 bushels per acre, (-4.1 bpa)

US carryover stocks: 806m bushels, +34m bushels, (-322m bushels*)

World carryover stocks: 119.966m tonnes, +2.576m tonnes, (-4.334m tonnes)

* = comparison made with end 201-11 figure from September 30 US stocks report

"We have put a lot of the bearish news into the prices already," Mr Gidel told Agrimoney.com.

"It may take an additional three, four, five bushels an acre in corn yield before it would look like a bearish number likely to have a real impact."

Indeed, end users of corn are "are starting to see value at these levels", Alex Bos, at Macquarie’s New York office, said.

"Corn ethanol margins are much improved from two or three weeks ago. US export competitiveness is much improved."

The market was appearing to move on "from what has really been a macro-related sell-off", sparked by fears for the eurozone debt crisis and the US economy, which saw Chicago corn tumble 22% during September, on a near-term contract basis.

‘All over the spectrum’

Bullish sentiment in the run up to the report has been further sparked by talk of Chinese corn buying, albeit potentially from Argentina rather than the US, with market talk of purchases of 3m-5m tonnes from the South American country.

Wasde forecasts – 2011-12 soy, diff from existing,  (and from 2010-11)

US production: 3.081bn bushels, -4m bushels, (-248m bushels)

US yield: 41.8 bushels per acre, unchanged, (-1.7 bushels per acre)

US carryover stocks: 183m bushels, +18m bushels, (-32m bushels*)

World carryover stocks: 63.04m tonnes, +490,000 tonnes, (-5.78m tonnes)

* = comparison made with end 201-11 figure from September 30 US stocks report

Any Chinese buying is being viewed as positive for prices, in signalling unmet demand in the world’s second-ranked consumer of the grain.

Furthermore, latest yield talk has been less favourable even than in early October.

"Corn yield reports still appear to be all over the spectrum," Jon Michalscheck at Benson Quinn Commodities said.

Paragon Economics and Steiner Consulting noted "mixed reports on actual yields", with results appearing to depend on whether heat-stressed fields "caught one or more of those scattered showers in July and August".

"Much of the talk in Iowa is that yields are better than expected but much of what we hear from east of the Mississippi River is that yields are disappointing."

Illinois-based consultancy AgResource on Tuesday estimated the corn yield at 143 bushels per acre – well below other expectations for the Wasde. The lowest forecast identified in a Reuters poll of analysts was 145.2 bushels per acre, by Cropcast Weather.

Wheat breakdown

Ideas over the US soybean yield appear, in general, less controversial, with most analysts expecting the Wasde to come up with a yield figure within 1 bushel per acre of the USDA’s current forecast, of 41.8 bushels per acre.

Wasde forecasts – 2011-12 wheat, diff from existing,  (and 2010-11)

US carryover stocks: 733m bushels, -28m bushels, (-128m bushels*)

World carryover stocks: 194.644m tonnes, +54,000 tonnes, (+1.304m tonnes)

* = comparison made with end 201-11 figure from September 30 US stocks report

"There have been recent indications that yield in areas which were hit with dryness could be down due to low moisture content. However, we still expect to see a jump in yield to around 42.8 bushels per acre," Hightower Report, one of the most optimistic observers, said.

For wheat, analysts urged investors to note the breakdown by type of a higher-than-expected overall US wheat stocks unveiled in a report two weeks ago.

"Hard spring wheat ending stocks could slip below 100m bushels, which would be the second tightest on record," Hightower Report said.

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