U.S. corn futures are expected to open slightly lower Monday after the government cut its demand outlook for the coming year.
Corn futures are expected to open 2 to 4 cents lower following the U.S. Department of Agriculture's monthly supply and demand report, which projected corn stockpiles by the end of the 2011-12 marketing year would total 672 million bushels, down from an August estimate of 714 million but above the average analyst forecast of 636 million.
The USDA cut its demand outlook for feed, ethanol and export demand, which offset a sharp decline in the projected size of this year's U.S. crop.
The USDA projected this year's crop would yield, on average, 148.1 bushels per acre, down from an August estimate of 153 bushels per acre and below the average analyst guess of 148.8 bushels. The hottest summer in decades across much of the Midwest hindered crop growth this year.
"We think the USDA got it right on the supply cuts," said Rich Nelson, director of research for Allendale, an Illinois brokerage. "The surprise we have is how aggressive they were in offsetting it with weaker demand."
In particular, he questioned whether ethanol production will drop given that it is still profitable.
The USDA cut projected ethanol use for the next marketing year, which ends Aug. 31, 2012, by 100 million bushels to 5.0 billion. It cut projected feed usage by 200 million bushels to 4.7 million, and slashed projected exports by 100 million bushels to 1.650 billion.
The report is negative for the market, but should not have a long-term impact on prices, as traders quickly turn their attention to any threats of frost in the Midwest, as well as yield reports as harvest gets underway, said Jerry Gidel, analyst for North America Risk Management Services.
"Is this going to end up crashing and burning us for weeks? No," Gidel said.
Traders also noted that corn prices in over-the-counter trading ahead of the futures market open were actually higher following the report.
Meanwhile, the USDA in a separate report Monday announced that the U.S. sold 114,300 metric tons of corn to unknown destinations for the 2011-12 marketing year.
Analysts said the direction of corn and other agricultural commodities could be set by outside macro markets, as worries about Europe's debt crisis continues to cause big swings in equities and other assets.
CBOT corn for December delivery was down 6 1/2 cents to $7.30 in overnight trade, before the USDA report was released.