After the USDA revised downwards the U.S. corn yield forecast in September and October, very few people expected that the final assessment would surpass all previous USDA predictions. And yet, according to the USDA report published on November 9, the U.S. corn yields in 16/17 was 175.3 bushels per acre, which is a historic record. Accordingly, the total corn crop in the United States in the current season will amount to 386.75 million tons, which corresponds to the highest expectations of the analysts.
At the same time, despite the fact that the USDA has kept the U.S. corn exports forecast for 16/17 at the level of 56.52 million tons, increased the domestic consumption forecast to the level of 314.59 million tons level (+2.16 million tons) and revised the beginning stocks downward, the ending stocks forecast for 16/17 has increased by 2.11 million tons relative to the previous forecast, amounting to 61.05 million tons - the maximum indicator over the last 32 years. It should be recognized that the updated USDA forecast clearly shifted the balance on the U.S. corn market towards the supply.
However, according to the USDA, the global corn market situation changed slightly and was mainly connected with the revision of the forecast for the United States. As a result, the forecast of the global corn ending stocks in 16/17 rose by a slight 1.38 million tons and almost coincided with the expectations of the analysts.
So, the picture is negative in terms of the balance, but let's evaluate the other factors.
According to the November forecast of the International Research Institute for Climate and Society, the probability of the formation of La Nina in the period from October to December this year has risen to 75%. A month earlier this probability was 70%.
Source: IRI ENSO Forecast
La Nina typically affects corn and soybean yields in the United States. In this case, the corn yields in Argentina are also threatened.
In addition, the current year is the third year in a row when the corn yield in the United States substantially exceeds the trend. Last time this pattern was observed in the period from 1985 to 1987. Then, in 1988, the corn yields in the United States fell by about 30%. By the way, the formation of La Nina was observed in 1988. As you can see, the coming year and the 1988 are very similar in this context.
Next, I believe it is quite logical to expect the U.S. farmers to reduce the corn planted area and wheat in favor of soybeans in the coming year. It's all about the profitability. While wheat and corn are traded at the level of a six-year low, soybean is doing relatively well in terms of price. Thus, it is economically reasonable to a farmer to extend the soybean planted area, respectively reducing them under corn and wheat. Anyway, we will see the first USDA assessments concerning the planted areas in 17/18 not earlier than in March, 2017.
From the technical point of view, there is a little cause for optimism. On November 9 the December corn futures price broke the ascending support line, which potentially means a target price at the level of $3.30. The key indicators negatively characterize the state of the market.
Corn volatility index is nearing the minimum level, and it does not give reason to hope for a more or less significant price movement in the near future
The actions of the money managers, as I have covered previously, also point to the formation of the side trend on this market.
So, we already have a lot of the corn in the United States - more than needed to cover the growing needs of consumption and exports. On the other hand, we have a risk that there will be less corn in the future. This sequence gives no significant chances for a steady bullish trend, though is indicative of support. The technical picture of the market is rather negative. Bringing it all together, I expect a side, sluggish trend with a possible short-term decrease to a level of $3.30 on the corn market next month.
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