Last week I wrote how corn futures had lost their luster due to higher yield forecasts. USDA confirmed that notion in yesterday’s USDA report, pegging corn yield at 181.8 bushels per acre, up from the July estimate of 178.5.
Normally, confirmation of a large crop getting larger would send prices lower, especially in August when seasonal patterns suggest lower prices until month end. The market, however, did not react bearishly -- in fact, prices closed higher, posting bullish reversals on daily charts. This was the most bullish price response from an August USDA report day since 2013.
So what happened?
In a surprise, USDA increased old crop corn demand for exports. Old crop exports are now pegged at 1.795 billion bushels, up from 1.775 in July.
Also unexpected was how old crop corn demand for ethanol was left unchanged at 4.850 billion bushels. Some thought that number could have been revised lower to reflect continued demand loss due to COVID-19. Because of this, old crop ending stocks were actually reduced to 2.228 billion bushels, down from 2.248 billion bushels in July.
With lower old crop ending stocks, that created lower carry-in for the new crop marketing year. This partially offset the higher yield number. Demand for new crop corn was also increased. The feed and residual category has corn demand now marked at 5.925 billion bushels, up from 5.850. Demand for ethanol was left unchanged at 5.2 billion bushels.
And there is optimism for more corn exports! (Read more here). Export demand for new crop corn is now at an impressive 2.225 billion bushels, up from 2.150. New crop ending stocks are projected at 2.756 billion bushels. This is up from 2.648 projected last month.
Normally, trade would jump all over an increase in ending stocks. The reason it didn’t is because trade was figuring the ending stocks number would actually come in closer to 3 billion bushels. Thanks to USDA adjusting demand projections, the market was saved from that 3 billion bushel number, which would have likely sent corn futures to $3 or lower.
Monday’s devastating Derecho storm just made 2020 even more strange. It slayed some corn stalks like a samurai sword and brought immense destruction to what looked like near record corn production. Early reports suggest that 10 million acres of crop in Iowa alone were affected. Some analysts project early corn production loss to be somewhere between 200-400 million bushels.
USDA was quick to remind us that yesterday’s report data was collected prior to the storm. But the market certainly had it factored in, which may be another reason for corn’s upward price move.
The September USDA report will integrate objective yield measurements such as ear and pod counts. NASS did clarify yesterday that a leaning stalk would be counted in the objective yield survey, but a stalk that is broken off would not.
It will likely take months to understand the true production loss from the storm. But let’s say 300 million bushels is lost from production; that would take new crop ending stocks down to 2.456 billion bushels, and keep corn futures above $3 per bu.
Put all these factors together and you get a rare August ‘about face in corn futures.