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Insight Focus
Chicago corn fell on bearish WASDE but rebounded on dry weather. Brazilian corn output rose, while French wheat jumped 29% and corn fell 5.6%. Record US yields justify sub USD 4/bushel, but weather risks and short covering could spark rallies.
There are no changes to our forecast for Chicago corn for the 24/25 crop (September/August) to average USD 4.55/bushel, which will be closer to USD 4.40/bushel now that we have just half a month until the end of the crop year. The average price since September 1 is running at USD 4.39/bushel.
Corn plummeted in Chicago following a bearish WASDE but rallied back on dry weather, closing the week positive. Brazilian corn production is higher. French wheat production is up 29% year-on-year, while corn is expected to fall 5.6%.
USDA Boosts Corn Yield, Triggers Selloff
The USDA surprised the market last week with the August WASDE, increasing corn yield significantly and causing a selloff. But the market recovered during the rest of the week, especially on Friday, following heat and dry weather forecasts in the US corn belt, with the weaker dollar helping as well. The Friday rally offset all of Tuesday’s losses, and the week closed slightly positive.
Wheat followed corn in the selloff despite the reduction in wheat stocks in the August WASDE and did not recover like corn, as confirmation of a bumper crop in Europe weighed on the market. Corn and wheat also fell in Europe.
The August WASDE reduced old crop stocks by 35 million bushels, almost entirely due to higher exports. But the lower old crop stocks were more than offset by a huge upward revision to new crop production of 1.04 billion bushels, coming from higher acreage and higher yield.
Harvested acreage came in at 88.7 million vs. 86.8 million before, and corn yield was up a sizable 7.8 bushels per acre (bpa) to 188.8 bpa vs. 181 bpa before. This results in 16.7 billion bushels of production – an all-time high – up from 15.7 billion bushels in the July WASDE.
Ending stocks for the new crop are now up by 457 million bushels to 2.1 billion bushels, as the jump in production is partly offset by higher demand – including ethanol – and higher exports. The stock-to-use ratio now rises to 13.3% vs. 10.8% in the July WASDE and vs. 8.5% for the old crop.
World corn ending stocks were up by 10.5 million tonnes. Besides the upward revision to US production, Ukraine was revised up by 1.5 million tonnes, while the EU was revised down by 2 million tonnes.
Source: USDA
Conab in Brazil increased its corn production forecast for a second consecutive month to 137 million tonnes, up 2% from its previous estimate and vs. 132 million tonnes in the WASDE.
US corn conditions are 72% good or excellent, down 1 point week-on-week and vs. 67% last year. French corn conditions fell to 65% good or excellent, down three points week-on-week and vs. 76% last year. The government reduced its corn production estimate to 13.9 million tonnes, down 5.6% year-on-year.
USDA Cuts US wheat stocks
On the wheat side, the August WASDE reduced US wheat ending stocks by 21 million bushels, a combination of 2 million bushels less production and 25 million bushels higher exports.
World ending stocks were reduced by 1.44 million tonnes, all of it coming from 2 million tonnes of lower production in China, partly offset by some small upward revisions in other countries.
Source: USDA
French wheat is now fully harvested, completing 33.1 million tonnes, up 29% year-on-year. US winter wheat is 90% harvested vs. 92% last year and vs. the five-year average of 91%. US spring wheat is 16% harvested vs. 16% last year and vs. the five-year average of 22%. US spring wheat conditions were 49% good or excellent, up one point week-on-week but well below 72% last year.
Russian wheat is 56.6% harvested vs. 59.6% last year, but yields are up 4.6% year-on-year. Ukrainian wheat is 88% harvested vs. 100% last year.
Dry Weather Spreads Across Key Producers
On the weather front, heat and dry weather are now expected in the US corn belt, putting the USDA’s record yield forecast at risk. Dry weather is expected in Brazil’s centre-south – normal for this time of year – while Argentina is expected to receive light rains. Hot and dry weather is also expected in Northwestern Europe, while the Black Sea region will receive beneficial rains.
The upward revision for US corn production comes from optimal weather since planting season. Now it is time for the market to price the new supply picture, which does justify a sub USD 4/bushel market. But we still have a month and a half before harvesting starts, and although all is going well, all the bearish news is already priced in. If weather is less favourable between now and harvest, the record yield will have to be revised lower. The large net spec short leaves the market vulnerable to short-covering rallies.
