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Ag investors brace for controversy, as US stocks data loom

Friday could bring a high point of the annual agricultural commodities calendar, in terms of controversial data.

Plenty of crop reports attract market grousing. But the US Department of Agriculture quarterly grain and oilseed inventory reports have become magnets of particular criticism.

And of these, the report showing September 1 stocks, the latest of which will be released at 1330 UK time (07:30 Chicago time) is the big daddy, coming in with numbers for corn and soybeans which will mark the carry-out inventories for 2011-12, and the beginning ones for 2012-13.

At least the USDA has plenty of cracks at getting its yield numbers right. It only has one shot at this report.

And inventory figures are of great significance for investors, given their use in forming the stocks-to-use number which, in giving an idea of the availability of a crop, gives an indication of the prices that buyers will have to pay.

Soybean dynamics

The concerns centre over the corn stocks number.

Market estimates for data on US corn stocks, Sept 1

Average estimate: 1.113bn bushels

Highest estimate: 1.261bn bushels

Lowest estimate: 887m bushels

Current USDA figure: 1.181bn bushels

Year-ago figure: 1.128bn bushels

Sources: USDA, ThomsonReuters

For soybeans, of which the market is expecting a 113m-bushel figure, "it doesn't matter if the number is 20m bushels higher or lower, it is still tight," Jerry Gidel, chief feed grains analyst at broker Rice Dairy, said.

And even if stocks are larger there appears, after a poor South American harvest earlier in 2013, plenty of demand both abroad and in the US to mop up extra supply, as highlighted in export sales data on Thursday.

"Total sales now stand at 77% of the total USDA is projecting for the entire 2012-13 crop year," Darrell Holaday at Country Futures said.

Indeed, this is why even with thoughts that the ongoing harvest will prove larger than officials are counting on, extra production "will just simply be pushed into the export projection", he added.

Corn conundrums

For corn, however, there is less resilient demand to count on to.

Market estimates for data on US soybean stocks, Sept 1

Average estimate: 131m bushels

Highest estimate: 152m bushels

Lowest estimate: 110m bushels

Current USDA figure: 130m bushels

Year-ago figure: 215m bushels

Sources: USDA, ThomsonReuters

Corn exports are already at a trickle, falling to all of 368 bushels in the latest week, or "a semi and a half", as Don Roose, president of US Commodities put it, meaning, for Brits, one and a half large lorry loads.

And it is in corn that the big issues with September 1 inventories have appeared.

Two years ago, the USDA attracted criticism for coming in with a corn stocks figure which was 20% above both market forecasts and farm officials' own number issued earlier that month.

Last year was not much better, with the USDA hiking its figure by 208m bushels from that in the monthly Wasde crop report issued three weeks earlier.

Investors were at least partly prepared that time, forecasting some rise in the inventory figure. But the extent of the hike was well above the 42m bushels they had factored in.

Old vs new

Plenty of reasons have been cited for causing the data surprises, ranging from substitution with Canadian wheat imports, to improved ethanol plant efficiency, to poor crop quality which left stacks of grain loaded up in barges in the Mississippi, waiting for better-quality grain to be mixed with.

But a main complication has been worries that farmers are confusing old crop with new – counting total on-farm inventories as of September 1, rather than just those left over from the previous harvest.

"Elevators have no excuse for wrong data. It's a warehouseman's job to know exactly what he has in store," Mr Gidel said.

And this year's early harvest has only made the potential for crop confusion stronger, despite refinements by the USDA to the way it collects its information.

"If the USDA gets bad data in, it is going to have bad data coming out," Mr Gidel said.

'Confuse the issue'

And that's not all that investors have to consider, especially in years like 2012 with early harvests.

Even if inventories of old crop corn come in unexpectedly high, that could be down to substitution in feed and ethanol mills with crop straight off the combine, rather than there actually being larger-than-expected supplies.

"It does confuse the issue, the early harvest," Dan Cekander at Chicago broker Newedge said.

Feed puzzle

Another potential anomaly is thrown up by attempting to work through the data using the June 1 stocks number, and factoring in exports and ethanol usage since, numbers which are pretty well covered by weekly data.

Market estimates for data on US wheat stocks, Sept 1

Average estimate: 2.278bn bushels

Highest estimate: 2.533bn bushels

Lowest estimate: 2.159bn bushels

Year-ago figure: 2.147bn bushels

Sources: USDA, ThomsonReuters

"The result is 170m bushels of corn usage for feed over the three summer months," Mr Gidel said.

"That's 60% down on last year, which was itself considered a low figure," with the number historically being nearer 700m bushels.

OK, estimates for the summer feed number differ, with US Commodities putting it at 320m bushels.

But as the broker pointed out, "it is not as if we have had a huge change in livestock numbers".

'The market fear…'

Whatever, when the data comes out, "the market fear is that the corn number is high", Mr Cekander said.

"Prices will come down hard if we see corn stocks of 1.35bn bushels," some 240m bushels above market expectations.

Still, it may take some going for values to go limit down after the report, as last year, US Commodities' Mr Roose said.

"People are expecting a bearish report," a big factor in corn price declines which have reached 12% in Chicago so far this month.

"But that may mean that we need a large stocks number on Friday to get a further negative price reaction.

Price low?

Indeed, it could be that the corn market is close to "posting an intermediate low", Mr Roose added.

Still, that could depend on harvest pressure too, and the next USDA Wasde crop report, in October.

And with potential revisions to harvested acres and crop yield to think about in that briefing, that is a whole other ball game.

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