The revisions found in the Jan. 10 USDA reports for corn (CBOT:CH14) may have altered the bearish landscape for this market.
First, the estimate for quarterly stocks came in at 364 million bushels below the average guesstimate. In itself, this was not the biggest headache for bears, because the figure has been notoriously volatile, with the USDA first “finding” and then “losing” – or vice versa – a couple of hundred million bushels here or there.
While the quarterly stocks report was more damaging to the ending stock figure, the final estimate for the harvested U.S. 2013-14 crop was probably a greater disappointment for bears. The street was confident that yields picked up in the late going, but were off the mark by a wide margin. The average guesstimate for the bushel-per-acre (bpa) yield was 161.2 bpa, above the 160.4-bpa December estimate, but the actual figure was 158.8 bpa, below the low end of the range of analysts’ guesstimates. The estimate for harvested acres was revised upward from the December estimate by 436 million acres, to 87.668 million acres, and was above the guesstimate. That, however, was not enough to mitigate the lower yields. The final crop estimate was 13.925 billion bushels, down from the 13.989-billion-bushel December estimate, and below the average of analysts’ guesstimates for 14.066 billion bushels.
The demand side was bullish as well. Despite the fear that the U.S. ethanol market will shrink without the crutch of government subsidies, the estimate for ethanol usage in the new marketing year was revised upward by the bushel equivalent of 50 million bushels, to five billion bushels, just below the record set in the 2010-11 marketing year. The feed estimate was revised up by 100 million bushels, to 5.3 billion bushels.
Ending stocks will fall to 1.631 billion bushels, or 12.4% of consumption, down from last month’s 13.7%.
On the international front, the only material revision was a 2.8% increase in the estimate for Chinese production. Still, with lower stocks in the U.S. and some minor bullish revisions for other countries, the estimate for global ending stocks fell to 17.05% of consumption, down from the December estimate of 17.34%. Traders greeted the reports with a 20¢-per-bushel rally, erasing a couple weeks of losses (Chart 1).
Although prices have been in a precipitous downtrend, we shied away from the short side in our Dec. 8 article on corn for two reasons. One was the likelihood that farmers will make a significant acreage shift to soybeans because of better returns. The other rationale was a strong export market. Both factors are still operative.