USDA surprises traders with corn yield
Late last week, the White House announced they were immediately suspending tariffs with Mexico as they had reached an agreement on immigration. The potential trade implications of a trade war with Mexico rattled the grain complex late last week.
According to Reuters, the Trump administration stated tariffs could still apply to Mexico if it was determined the country hadn’t done enough in terms of the demands discussed. U.S. Secretary of State Mike Pompeo told reporters the expectation is to see results within four to six weeks. Terms of the deal between the two countries meant Mexico would expand a program in which migrants applying for asylum in the U.S. would stay in Mexico until the process was complete. Mexico also stated it would help reinforce the southern border with Guatemala.
The Crop Progress Report released last Monday, showed corn being 83 percent planted compared to last week’s 67 percent.
Soybeans were at 60 percent planted versus the prior week’s 39 percent but still 28 percent behind the 5-year average.
Corn crop condition came in at 59 percent good to excellent rating compared to the 77 percent last year at this time.
The main story on Tuesday’s trade was the release of the USDA’s updated supply and demand figures. Corn futures rallied on larger than expected reductions on production. Many in trade were not expecting to see reductions to acreage but the USDA surprised by reducing it 3 million. Corn yield estimates were reduced by a large 10 bushels per acre to 166 bpa. The average trade estimate was to see less than a 4 bushel per acre reduction. In total, this took production down by 1.35 billion bushels. Usage was reduced, offsetting some of the production decline. Exports were taken down by 100 million bushels on old crop and 125 million new crop. Feed usage was reduced by 300 million bushels. No changes were made to ethanol demand. Imports were forecasted 15 million bushels higher. The net result shows old crop corn carryout at 2.195 billion bushels versus 2.095 last month. New crop carryout seen at 1.675 billion bushels versus the May estimate of 2.485 billion bushels.
Soybean data was less supportive as both new and old crop domestic soybean carryout are forecasted above 1 billion bushels for the first time in history. Very little changes were seen to the soybean balance sheets. From the production side, nothing changed, which the trade was expecting. Lagging export demand led to a 75 million bushel decrease on old crop exports, carrying data forward, this led to the only changes in the new crop figures as well.
The USDA continues to stand firm on the policy that Market Facilitation Program payments only will be paid on planted crops, not on prevent plant acres. There is some discussion about possible minimal payments for acres that take prevent plant and plant cover crops that could potentially be used for forage. However, there are legal hurdles that need to be negotiated.
Last Friday’s commitment of traders report concluded a topic that trade has been monitoring. It was earlier reported by FC Stone, that since May 2014 each time the Funds have held a sizable short position, they’ve covered those contracts and went long by 100,000 contracts or more relatively quickly in each instance. Last Thursday funds were estimated to be holding 105,000 long corn contracts after being nearly 400,000 short in April. This pattern has now been seen 8 consecutive times over the span.
For more information, you may contact Kristi Guse at (712)-260-6486, or e-mail at email@example.com. The opinions and views expressed in this commentary are solely those of Kristi Guse. Data used in writing this commentary obtained from various sources believed to be accurate. This commentary is intended for informational purposes only and is not intended for developing specific commodity trading strategies. Any and all risk involved with commodity trading should be determined before establishing a futures position. Please visit our Risk Disclosure Page for more information on commodity trading.
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