Corn: Will anyone pay these prices?

The August USDA crop report contained some of the largest and most dramatic revisions on record. All eyes were on the 2012-13 US corn crop, which has taken a drastic beating from this summer’s early and unusual heat.

The brutal weather began its damage in early June. The estimate for the bushel-per-acre (bpa) yield was already cut in the July crop report to 146 bpa, down from the June 166-bpa estimate, which would have produced a record-by-far crop of 14.79 billion bushels. The average of analysts’ guesstimates for the August report called for a further steep drop, to 127.33 bpa, with the actual figure coming in at 123.4 bpa. The difference between the estimate and guesstimate was close to 350 million bushels, large enough to be a game changer.

The overall results of the report, however, were much closer to what analysts had anticipated. The USDA made significant provisions for demand rationing. The estimate for 2012-13 feed usage was slashed from the July estimate by a whopping 725 million bushels, to 4.075 billion bushels. The estimate for ethanol usage was cut by 400 million bushels, to 4.5 billion bushels. The forecast for exports was lowered by 300,000 bushels, to 1.3 billion bushels.

The average guesstimate for US 2012-13 ending stocks was 660 million bushels, and the number came in at 650 million bushels, or 5.8% of consumption, all but right on the money. That compares with last month’s estimate of 1.183 billion bushels, or 9.3% of consumption.

The yield was the headline item and attracted some buying when the report hit the wire, pushing December corn to a new record high of $8.49 per bushel, but the euphoria did not last long. The market closed out the day down from the previous session (Chart 1). Buy the rumor...

Corn chart

Where does the market go from here? Enough respectable analysts believe that the crop is subject to more bad news and that yields will be revised lower yet again in the September crop report.

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