So much for the bottom in grain prices some were hoping would materialize.
"It was shockingly bearish report," said Ted Seifried, an analyst at the Chicago brokerage Zaner Group. "Yield numbers coming in well above the trade expectations. But we're not down as much we could be. And that's a little skepticism on those yield numbers along with the fact that we're depressed by the demand numbers that the USDA showed."
Chicago-traded December corn futures slipped nearly 3 percent to a 52-week low of $3.224 a bushel Friday after the U.S. Department of Agriculture said the current U.S. corn crop will be even bigger than expected as a result of sharply increased yields. But corn then reversed course and ended the session at $3.33 a bushel. Soybeans were down fractionally but briefly flirted on the upside.
Corn production is forecast at a record 15.2 billion bushels, up 613 million from the July projection, the USDA said in its World Agricultural Supply and Demand Estimates report. Corn ending stocks for 2016/17 are projected 328 million bushels higher and, if realized, would be the highest since 1987/88.
Based on the August government data, analysts see the cash flow for large row-crop farmers declining rather than rising.
"Supply is growing faster than demand (on record yield expectations for corn, soybeans, and wheat), and implied row crop cash flow compressed from the July report to down 3 percent year-over-year from up 0.8 percent year-over-year," said Wells Fargo analyst Andrew Casey in a note Friday. "The lower cash flow outlook is a negative for farm equipment stocks, given it implies further downside pressure for 2017 high horsepower equipment demand in North America."
The government's corn yield forecast is for 175.1 bushels per acre, the very high end of analysts' estimates. That compares with the government's July estimate of 168 bushels per acre. If realized, the corn yield would be an all-time record as it would exceed the high of 171 bushels an acre set in 2014/2015.
The August WASDE report issued Friday is the first yield forecast of the season based on actual corn field surveys so it carries more weight with traders.
However, Siefried said some traders maybe skeptical about the aggressive yield numbers.
"USDA is going into fields and they are counting ears but they are not pulling the leaves back on the corn plant to count and actually look at the corn cobs to count corn kernels," he said. "In the September report when they do that — and they start looking at the actual corn cob and counting kernels — they may find that some of the corn had some difficulty going through pollination due to very warm temperatures. And there may have been some damage done."
Nearly all Corn Belt states, with the exception of Minnesota and South Dakota, are forecast to have yields above a year ago, USDA said.
The USDA also sharply reduced its season-average farm range price for corn, from $3.10-$3.70 per bushel to the $2.85-$3.35 per bushel.
Soybean production for 2016/17 is forecast at 4.06 billion, up 180 million due to increased yields. The government forecast a yield of 48.9 bushels per acre, which is 2.2 bushels above last month and 0.9 bushels above last year's record.
Among the major farm machinery stocks, Deere stock was down just over 1 percent in late day trading and AGCO off 1.7 percent.