US nearby corn futures were up the daily permissible limit during the day session on Tuesday on speculation that the US WASDE report could be more bullish than previously expected.
Market reports indicate that much of the rise in futures yesterday may have been motivated by traders covering short positions as well as by reports that Russia is looking to put in place an export control system that sets a limit on the amount of grains that can be exported in the upcoming year.
Our initial read of the report is that it is slightly bearish for corn (due to higher US and world stocks), moderately bullish for soybeans (on tighter US supplies) and moderately bearish for wheat (higher US and global supplies).
In our view, the fact that the report did not contain any explosive bullish news on corn, which was part of the frenzy yesterday, could negatively affect futures in the short term.
Increased wheat supplies could also provide some relief, particularly in world feed markets. The attached tables offer comparisons to the pre-report estimates based on a Dow Jones analyst survey.
As expected, USDA revised up its estimates of US corn stocks for 2010/11 based on results of the quarterly stocks survey. The change added about 208 million bushels to last year’s ending stocks, thus boosting the overall supply available at the start of the 2011/12 marketing year.
One item that remains the focus of market participants are potential yields for the crop that is currently being harvested. Harvest progress remains behind last year’s pace but in line with historical averages.
USDA reports that through 9 October, corn farmers had harvested about 33 per cent of the crop, compared to 50 per cent during the same period a year ago and 32 per cent for the five year average.
Coming into the report, analysts pegged national average corn yields at 148.8 bu/acre (Bloomberg). The October USDA WASDE estimate was kept unchanged at 148.1 bu./acre.
On the demand side, the WASDE report made only a few adjustments.
Feed and ethanol use was left unchanged while exports were reduced by 50 million bushels. That reduction in demand together with the increase in starting stocks added about 194 million bushels to the expected US ending stocks for 2011/12.
One important aspect of the report is the outlook for global corn and coarse grain supplies. On average analysts pegged world corn ending stocks at 119.966 million tonnes, 2.58 million tonnes larger than the September USDA estimate.
The October WASDE report increased ending stocks for 2011/12 to 123.19 million tones, almost six million tones larger than the September estimate. Most of this was due to the boost in US ending stocks but also larger expected stocks in Former Soviet countries and in the Ukraine.
USDA also raised world wheat ending stocks for 2011/12 to 202.37 million tones, compared to prereport estimates of 194.644 tonnes.