Corn futures plunged limit down in Chicago after the US said that its harvest had not been nearly as badly affected by a historically wet spring as investors expected - although the soybean harvest outlook feel short of forecasts.
Corn futures for December locked down the exchange limit of $0.25 a bushel, equivalent to 6.0%, to close at $3.92 ¾ a bushel.
The slump – which left futures at their lowest in nearly two months, essentially wiping out the last risk premium from the US’s slowest corn planting period in recent history – followed the US Department of Agriculture’s forecast of a 13.90bn bushel domestic harvest.
That figure represented a 26m-bushel upgrade - rather than the 680m-bushel downgrade than investors had expected.
Indeed, the USDA’s revised estimate - which officials said “put the harvest at the “fifth highest… on record” – was well above any of the forecasts in investor poll.
“The trade once again got it wrong,” said Terry Reilly at Futures International.
The USDA’s upbeat forecast reflected in part a higher figure for sowings than investors had expected, with a figure for seedings of 90.0m acres, while down 1.7m acres on the previous figure, still above that of any forecaster polled by Reuters.
However, the USDA also surprised investors by raising its forecast for the average domestic corn yield this year by 3.5 bushels per acre to 169.5 busels per acre.
The upgraded estimate - the first based on actual crop surveys rather than projections based on historical experience – would still represent a yield fall of 6.9 bushels per acre year on year.
“Illinois, Indiana, Iowa, Minnesota, Nebraska, Ohio, and South Dakota are forecast to have yields below a year ago,” the USDA said.
“Of the major producing states, only Missouri is forecast to have yields above a year ago.”
Nonetheless, the figure was above the top of the range of traders’ estimates.
And combined with downgrades to figures for US corn consumption in ethanol plants and for exports, the revisions fed through into a carryout stocks figure for 2019-20 of 2.18bn bushels – nearly 500m bushels above the market forecast, and a figure termed “shocking” by Mr Reilly.
“Exports are lowered reflecting US export competitiveness and expectations of increasing competition from Argentina, Brazil, and Ukraine,” the USDA said, with the elevation in US corn prices from the second half of May having sent much demand to cheaper origins.
Soy stocks downgrade
For soybeans, by contrast, the USDA lowered its forecast for the domestic harvest this year by 165m bushels to a six-year low of 3.68bn bushels – below the 3.80bn-bushel figure that investors had expected.
While the USDA did not downgrade its forecast for the US soybean yield this year, as many traders had forecast, it did cut by 3.3m acres to an eight-year low of 76.7m acres its forecast for plantings.
That downgrade, reflecting “reductions for Ohio and South Dakota”, was below the expectation of even the most gloomy investor, with most indeed expecting an increase the plantings estimate.
The revisions fed through into a stocks forecast of 755m bushels, a reduction of 40m bushels from the previous figure, and again comfortably below market expectations.
‘More competitive prices’
For wheat, the USDA forecast stocks at 1.01bn bushels at the close of 2019-20, up 14m bushels from the previous estimate, and a little ahead of market expectations.
The forecast reflected a larger-than-expected to the harvest estimate, offset in part by a raised estimate for the amount corn used in domestic feed rations in 2019-20, which was upgraded by 20m bushels to a six-year high of 170m bushels, on “greater… supplies and more competitive prices”.
Prices of wheat, in particular Kansas City hard red winter wheat, have traded at unusually low premiums to corn.
The US also raised by 25m bushels to a three-year high of 975m bushels its forecast for exports, “on lower exportable supplies from key competitors, notably the EU, Kazakhstan, and Russia”.
Wheat futures for September slumped by 5.4% to settle at $4.71 ¾ a bushel in Chicago, caught in the downdraft from corn, but remaining slightly above a limit-down session, and ending some $0.06 above its intraday low.
Kansas City hard red winter wheat for September dropped by 5.9% to $3.92 1/4 a bushel, a three month low
Soybean futures for November stood down 1.5% at $8.79 1/4 a bushel, offered some protection by the lower-than-expected stocks estimate.
“We like buying soybeans and selling corn,” Mr Reilly said.