The US Agriculture Department's surprise forecast of a bumper corn harvest is likely to stay in place, even with farmers reporting signs of stress in their fields and weekly crop conditions falling to five-year lows. The government rarely makes big adjustments to its August corn harvest projections, which are the first that incorporate field reports into its surveys. This year's forecast came as the world is awash with corn and beans after successive bumper harvests.
The outlook is likely to keep pressure on the market until combines begin to roll in the fall. Since 1996, the average difference between the August estimate and the final production figure is just 0.6 percent. An average bump this year would boost the harvest by 85 million bushels.
"July weather was not ideal, but August has been amazing and forecasts for the coming weeks hold favourable conditions, too," Alex Norton, director of risk management for Beeson and Associates, said in an email. "It would be tough to be sitting at the USDA and make a huge cut to corn yield given the recent weather and current forecasts."
The government's August outlook for both production and yield came in well above the range of analysts' expectations and sent the market into a tailspin. The benchmark Chicago Board of Trade December corn futures contract which tracks the crop that will be harvested this fall sank 3.3 percent on Thursday, hitting its lowest since Sept. 30, 2016. Prices had firmed to their highest in nearly two weeks before the USDA's monthly report hit the market.
In the 10 years since 1996 where the USDA has lowered its outlook from the August projection, the cuts have averaged 2.4 percent. Some analysts insist it must lower this August's forecast due to the hot weather and dry conditions that stressed corn during its key pollination phase.
A similar cut this year would lower US production by 340 million bushels. That would still leave a crop of 13.813 billion bushels, which would be the fourth-largest ever and would add ample stocks to the global grain glut that has been hanging over the market.
Good-to-excellent ratings have fallen 8 percentage points since the start of July to 60 percent, the lowest for early August since the crop-wrecking drought of 2012. But the USDA pegged the average yield at 169.5 bushels per acre, which would be the third-highest ever.
"It's going to be very hard to get down to the low 160s," said Dan Cekander of DC Analysis. "The bulls want to be down close to 160 yield and with the starting point here I think that's out of the cards. I'm not saying they can't lower it. But to get the real low numbers, that is very difficult to do now."
The USDA forecast could weigh on prices until the harvest. "Once we get out in the fields and see that we don't have the crop out there, we're going to see this thing bounce back but that's going to be a while," said Mark Gold, analyst at Top Third Marketing.