Commodities: USDA yield projections may be justified

By Jason Sagebiel, FCStone | September 29, 2015

Do big crops get bigger?  Early on, the USDA has been more optimistic with yield potential than most of the trade.  In August the USDA pegged corn yield at 168.8 bushels per acre and then 167.5 bushels per acre in September.  Most analysts have been releasing yield numbers below the latest USDA figures due to concerns in areas where excess rainfall was noted.  Early yield reports were less than expected but even more so less than a year ago. Well, a year ago there were records yield levels in most areas.  However, with harvest getting started in other Midwest areas less affected by the heavy rains yield outlooks look more promising. 

Overall, the USDA may be justified in their current yield projections.  With current yield and acreage, corn production for the new 2016-’17 crop year is expected to be 13.585 billion bushels.  This compares to 14.216 billion bushels produced last year.  Demand is still expected to be 13.755 billion bushels with ethanol consuming 5.250 billion bushels.  Feed demand could wane this year with more milo and low grade wheat in the market place.  Ultimately the USDA is expecting the feed sector to consume 5.275 billion bushels of corn this year compared to last year’s current figure of 5.30 billion bushels. 

One of the limiting factors is world corn carryout.  Global corn carryout is 189.69 million metric tons (MMt) versus 197.2 MMt last year but more than 13 MMt greater than 2013-’14. Overall global corn has been on an upward trend after seeing it lowest global stocks level in 2003 and 2006. In addition, global coarse grains carryout has continued to increase. 

So what to expect with prices?  Corn feels like it has found a seasonal low at this time.  More storage capabilities and carries in the market will entice producers to hold onto to inventory.  This will offer times of support to both flat price and the cash market which could negatively affect corn end-user margins.

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