December corn is trading 2 cents higher near 7:00 am CST and there were no September corn deliveries overnight. Dalian corn traded slightly lower overnight. Grains are recovering following yesterday's sharp losses just ahead of this morning's USDA report. Outside markets are providing a positive tilt after European markets rallied on news that Germany's top court will support the new Euro zone ESM bailout fund. The Dollar moved lower on the news while metals, energies, grains, and equities began moving higher.
The USDA report news will set the tone for today. Long liquidation continued yesterday ahead of the report. Traders expect Wednesday's report to show yield near 120 bushels per acre. The market may consider the report bearish if the USDA meets the trade estimate. However, a cut towards 118-119 will be considered bullish. A yield of 119 bushels per acre would mean additional cuts in demand near 400-500 million bushels. The market is also expecting production near 10.4 billion bushels, down about 400 million bushels from last month. A production number near 10.4 billion bushels would be considered bearish given the recent price trend. It is also widely expected that harvested acres will be lowered by 1-1.5 million acres. A cut of 1.5 million acres would mean an additional 100-150 million bushels of demand will need to be taken out of the balance sheet to achieve similar ending stocks levels.
Volume was decent at 199,377 contracts which was slightly lower than the day prior and open interest was slashed by 8,762 contracts, suggesting the trade was mostly profit taking. The seasonal trend in corn is to move lower from here. However, the prospects of strong end user demand at lower price levels, against the backdrop of a sharply lower supply outlook, could make a dramatic move lower difficult. Most analysts suggest the rationing job ahead is being understated and higher price levels are needed. While this may be true, a large amount of demand destruction has already occurred, specifically in US corn exports. Major imports have turned to South American and Ukrainian corn and in some cases feed wheat out of the US, EU, and Australia.
Harvest weather continues to look good this week with dry conditions in the central Midwest the next 24 hours. A system of storms is sweeping across Nebraska, Southeastern South Dakota, and Minnesota at the moment which may delay progress slightly. Another round of showers is expected Thursday and Friday for the southern plains and Midwest. Precipitation totals are expected to range from.10-1 inch and the drier conditions following should provide a quick recovery so harvest can resume.
Corn basis was steady to slightly lower across the Midwest yesterday as harvest progressed. However, specific markets saw bids spike due to lack of sales and slow deliveries. A corn processor near Chicago increased their bids by 15 cents to 65 cents over the December contract while Decatur, IL processors bid +28. Bids on the Mississippi River were slightly lower with no notable disruptions to barge logistics and on sluggish export demand.
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