August 12, 2008
CBOT Corn Outlook on Tuesday: To open lower on bearish USDA report
Chicago Board of Trade corn futures are expected to fall Tuesday following a government crop production report that boosted projections for yield, total production and ending stocks.
Corn is called 7-10 cents lower.
The U.S. Department of Agriculture projected total corn production at 12.288 billion bushels, up from a July projection of 11.715 billion bushels and higher than analysts' average estimate of 11.938 billion bushels. Total production in 2007 was 13.074 billion bushels.
The government projected a yield of 155 bushels per acre, up from 148.4 bushels in July and above analysts' average estimate of 152.3 bushels per acre.
The government also increased harvested acres, from 78.9 million to 79.3 million acres.
The trade had largely been expecting production increases due to weeks of nearly ideal crop weather. Still, the yield and production projections were higher than the estimates of all but one of the 22 analysts surveyed by Dow Jones Newswires prior to the report.
"The conditions out there are probably a little bit better than what the trade was expecting," said Citigroup analyst Terry Reilly, who expects corn to open sharply lower.
With soybean yield and carryout projections dropping in the report, Don Roose, president of U.S. Commodities in West Des Moines, said the question Tuesday is "will corn drag soybeans lower?"
"Typically corn will pull beans down and the market will be very careful of getting too bullish on soybeans, as the crop is one to three weeks behind and things could change quickly," Roose said.
Corn ending stocks for the 2007-08 marketing year are projected at 1.576 billion bushels, down from the government's July estimate of 1.598 billion and below analysts' average estimate of 1.599 billion bushels.
The government projected 2008-09 ending stocks at 1.113 billion bushels, up from its July estimate of 833 million bushels and above the average analyst estimate of 991 million bushels.
"Corn ending stocks are much higher than we were looking for," said Terry Reilly, analyst for Citigroup.
Largely based on the increase in U.S. production, the government also increased world ending stocks for 2008-09, to 112.4 million metric tonnes, up from the previous month's estimate of 105.3 million metric tonnes.
If the report provides any support for corn, Reilly said, it is from a 150-million-bushel increase in corn use for ethanol, to 4.100 billion bushels in 2008-09. The government's export projection remained unchanged for 2008-09.
Analysts said the market will soon start looking beyond the report to the weather and crop development. Weather remains favorable for the crop, with periodic through Saturday, according to DTN Meteorlogix. Temperatures are supposed to be near or below normal.
The trade will begin to focus on the lack of growing degree days during the summer and the potential for the first frost of the season to damage the crop, analysts said.
Prices were virtually unchanged in overnight trading. September corn climbed 1/4 cent to US$4.97 1/2 and December corn was up 3/4 cent to US$5.17 3/4 per bushel.
The next upside price objective is to push and close December prices above solid technical resistance at US$5.50, a technical analyst said. The next downside price objective is to push and close prices below major psychological support at US$5.00.
First resistance for December corn is seen at Monday's high of US$5.24 1/4 and then at US$5.30. First support is seen at Monday's low of US$5.12 and then at US$5.00.