"Bearish" sweeps the market! The US Department of Agriculture unexpectedly raised production forecasts, causing corn futures to experience the largest drop in over two years.

Noted that, due to the United States Department of Agriculture (USDA) raising its expectations for US supply, while analysts had expected the opposite, corn futures prices recorded their biggest drop since June 2023 on Monday. The agency, in its monthly supply and demand report, raised both average corn yield and total production to historic highs, while quarterly stocks and end-of-quarter stocks data were also higher than expected. Chicago corn futures prices reversed earlier gains, falling by as much as 5.8%. The increase in supply comes at a difficult time for the market to cope with the pressure of global grains and oilseed harvests. Meanwhile, geopolitical factors have also disrupted market demand, including the latest attacks in the Russia-Ukraine conflict. Many analysts have been expecting the USDA to lower US corn yields for months as the growing season turned dry towards the end. However, instead of lowering yield expectations as expected, the agency raised their yield expectations from 186.0 bushels per acre to 186.5 bushels. None of the more than 20 analysts surveyed had anticipated this increase. "The risk to the market was that no one expected corn yields to increase, and that's exactly what we got," said Charlie Sernatinger, director of grains futures at Marex. He believed the report was "bearish in all respects." For over a year, strong demand for corn has been a relatively bright spot for US farmers, prompting them to increase corn planting at the expense of crops like soybeans last spring. Favorable overall weather has led to increased yields in most areas in states like Indiana, Nebraska, Minnesota, and South Dakota, all of which have seen record highs in production. As the next planting season approaches, farmers have more supply on hand than last year. The USDA recently unveiled a $120 billion aid package as a "bridge" to help farmers weather economic storm and move towards better times. One solution, according to the Renewable Fuels Association (RFA), is to increase the proportion of corn ethanol blended into US gasoline. RFA CEO Geoff Cooper said in a statement, "Today's surprising USDA report sounds a sobering alarm for the agricultural economy and underscores the need for lawmakers to take immediate action to expand markets for American corn growers." Meanwhile, in soybeans, the agency lowered its expectations for US soybean exports, citing increased production and exports in Brazil, the world's largest soybean producer. Despite China nearing its target of purchasing 12 million tons of US soybeans, it has not yet offset the aforementioned impacts.