Surprise USDA Crop Forecast Muddies U.S. Corn Price Outlook

The U.S. corn price outlook got a lot murkier on Monday when the U.S. government surprised the market by cutting its 2013 crop production forecast.

Market bears said Chicago Board of Trade December corn futures, the market's bellwether contract, may challenge their contract low of $4.01 per bushel since this year's crop is still expected to be large enough to set an all-time record

But the bulls expect prices to trend back to roughly $5 after the U.S. Department of Agriculture trimmed its crop forecast below the average level projected by industry analysts in its August crop report at mid-day Monday.

The still-ample crop should boost the supply of corn from a 17-year low this season to an expected eight-year high next year, which would benefit livestock feeders, exporters and ethanol makers, analysts said.

USDA pegged this year's U.S. corn crop at 13.763 billion bushels, below an average of analysts' estimates of 13.980 billion still up 5 percent from the current record of 13.1 billion set three years ago.

It projected the supply of corn at the end of next year at 1.837 billion bushels, below the average pre-report estimate of 1.971 billion but still the biggest stockpile in eight years.

CBOT corn rallied immediately when the USDA data was released, but analysts said the gains were due mainly to a surging soybean market.

"New-crop corn carryout was a little below trade estimates but it's still 2-1/2 times old-crop carryout so I don't see anything bullish for corn. Soybeans are supporting corn," said Karl Setzer, analyst for MaxYield Cooperative.

SHOCKING SOYBEAN DATA

USDA trimmed its forecast for U.S. soybean production and cut its outlook for U.S. soybean end stocks next year.

"The big surprise and shocker is soybeans. They cut the yield 1.9 bushels from July and that's a severe cut. You have new-crop stocks back down to 221 million bushels now and that's a pretty bullish number," Setzer said.

CBOT December corn closed 10-3/4 cents per bushel higher at $4.64 and new-crop November soybeans were up 43 cents at $12.25-1/4.

The December corn contract had fallen to $4.46-1/2, close to a three-year low, ahead of the USDA report, and November soy had traded down to $11.83 per bushel.

"We were trading over a 2 billion bushel corn carry-out. If we are now slicing that back to 1.8 billion, that would equate to about a 40-50 cent recovery in prices, so getting back to the $5 level would be logical," said Mike Zuzolo, analyst for Global Commodity Analytics.

GLOBAL CORN OUTLOOK CITED

Some analysts cited USDA's global outlook for feedgrains in lowering their December corn price forecast.

"They lowered the yield on corn and reduced supplies, but we certainly don't have to worry now about running out of corn," said Shawn McCambridge, analyst for Jefferies Bache.

"Also, they increased Ukraine corn by 3 million tonnes, and 1.5 million of that will go to exports, and the EU has a healthy crop."

USDA put Ukraine's corn crop at 29 million tonnes and increased its forecast for the region's corn exports to 18 million tonnes from the previous 16.5 million.

Despite the lower U.S. production forecast, USDA only slightly reduced its global corn ending stocks forecast for next year, to 150.17 million tonnes from its July forecast of 150.97 million.

"There is still a lot of corn available for next year with the world ending stocks now at 150 million tonnes, up from 123 million this past year," McCambridge said.

DECEMBER CORN FAVORED BY INVESTORS

The CBOT December corn contract long has been viewed as a benchmark price for newly harvested corn and the instrument of focus for farmers hedging or selling their crop. It is the key contract used by end users of corn such as livestock and chicken feeders, exporters and ethanol makers, and is popular with investors such as hedge funds and index funds.

December's open interest as of Friday stood at over 660,000 contracts, or 3.3 billion bushels, roughly 25 percent of the projected U.S. corn crop. It holds over half of the total open interest in CBOT corn futures of nearly 1.198 million contracts accounting for nearly 6.0 billion bushels of corn.