USDA report blows corn tops

The USDA Crop Production Report, out before the open Friday, has blown the top off corn prices.

Corn futures gapped wildly higher on Monday trading. At the top in the overnight electronic trading going into Monday morning, December futures were 45 cents higher. That was based on an expanded daily limit after being locked up the 30-cent limit Friday.

Historic move

The overnight trade posted a new contract high of 5.73 1/4 on the December futures. This was an amazing $1.19 higher than the low of Oct. 4, just a week before.

This makes it an historic move. A gain of a dollar in a week on the corn is very rare.

Didn’t stay. The high did not hold, as corn began to trade again in the late overnight session. Then, most of the day Monday, December futures traded between 30 and 40 cents higher. A weak close left us at 5.55 3/4, up “just” 27 1/2 cents.

Overnight trading going into Tuesday, Oct. 12, has us basically unchanged.

Beans jump, too

Soybeans, meanwhile, did not trade to the limit. November futures hit a high of 11.88 3/4, which was pretty amazing. That was up 5 3/4 cents, and held a gain of 17 1/2 cents at the close. Overnight going into Tuesday the market has gained nearly 9 cents.

Along for ride

The wheat went along for the ride Friday, with corn and beans wildly higher. Wheat futures were up 60 cents. Monday was different, with wheat down a dime, and the wheat futures are down another nickel this morning before the daily trade has started.

The report

All this is because USDA came out with a crop production report Friday before the open that cut corn yields sharply and beans a little. Add that to the market’s suspicion of the carryout number, and market action got wild.

Friday USDA projected a drop of nearly seven bushels per acre from the September report. They now say we will have a crop of 12.7 billion bushels, down 4 percent from the September guess. That will no longer be a record. Last year, we had 13.1 billion bushels.

The largest yield cut was the 14 bpa drop in Illinois. We knew the crop was a little thirsty in September, but this was a big change, and a surprise to the market.

The market was also cynical about the Supply and Demand Report a few days before. In that, the projected 2010-2011 crop carryout was higher than anticipated. Traders said it was bogus, as it was based on Sept. 1, and we already had a lot of early harvest by then.

Meanwhile, USDA also cut the bean production, but only by 2 percent. The result was still projected to be a record 3.41 billion-bushel crop.

Now what?

So, now producers are left with a decision. Do they sell a big proportion of the crop at what might be a report-induced blow-off high, or bet that the market has just set off another leg of the rally?

Ahead is still the hope of the E-15 announcement that would encourage more ethanol demand. Against that possibility is the chance that high corn prices actually hurt ethanol demand as they hurt ethanol profitability.