Bulls roar back on USDA crop cuts
The U.S. will raise a 13.8 billion-bushel corn crop based on an average projected yield of 154.4 bu/acre, two numbers that are well below previous trade estimates.
That's the take from Monday's USDA-NASS World Agricultural Supply and Demand Estimates report. The agency's monthly Crop Production report -- also released Monday -- shows the overall crop output for corn is 28% higher than a year ago.
"Based on conditions as of August 1, yields are expected to average 154.4 bushels per acre, up 31.0 bushels from 2012," according to Monday's Crop Production report. "If realized, this will be the highest average yield since 2009. Area harvested for grain is forecast at 89.1 million acres, unchanged from the June forecast but up 2% from 2012."
The numbers lit the fuse for soybean and corn futures, with the nearby soybean contract skyrocketing 42 1/2 cents higher to $12.24 3/4 shortly after USDA released its numbers. Nearby corn was 12 1/2 higher at $4.85 3/4 soon after the data.
"From a trade expectations perspective, this is a surprisingly bullish report," says Teucrium Trading market analyst and broker Sal Gilbertie. "The trade was clearly not expecting these diminished yield numbers."
Those numbers -- as well as soybean production that fell on the low side of previous trade estimates -- are largely bullish for both row crops, though soybeans are likely to take the lead as the trade's attention turns to crop weather and the likelihood of the crops not reaching maturity before frost hits this fall, adds Don Roose, trader and broker with U.S. Commodities in West Des Moines, Iowa.
"For corn, I think this is enough for a 'relief bounce,'" he says. "It's still a burdensome number. Now it's a footrace to crop maturity. Usually, small crops get smaller, and the immaturity of this crop is a concern. The margin of error went down dramatically. It's a game changer."
Moving forward, Roose says he expects prices to rise heading into fall, both because of sharpening focus on Mother Nature and the resulting fund-buying that's likely as prices bounce back higher.
"I think you're going to get some fund buying here," Roose says. "With corn, you have to get to an area where you're competitive with the world. It's more bullish for beans, with corn the follower here. It's enough to flush the shorts out."
Chat the reports: