Of all the big days for agricultural commodity investors,
Friday should, in theory, be one of the biggest.
It brings not only the first US Department of Agriculture estimates
for winter wheat sowings, and a Wasde crop report, one of the key points of the
ag investor's month.
It will also witness a quarterly USDA report on domestic
grain stocks, a data series which, however dry it sounds, has a history of causing
"If we are going to get a limit move on Friday," meaning
futures moving the maximum allowed in a day in Chicago, "it will be from the
stocks report," Rich Nelson, chief strategist at Allendale, the US broker,
The stocks report is important because it gives an insight
into the consumption part of the supply-and-demand picture which is often more difficult
to get a handle on than yield prospects, and is equally important for pricing.
Forecasts for Wasde US 2013-14 corn data and (change on current figure)
Production: 14.066bn bushels, (+77m bushels)
Range of estimates: 13.897bn-14.255bn bushels
Yield: 161.2 bushels per acre, (+0.8 bpa)
Carry-out stocks: 1.861bn bushels, (+69m bushels)
Range of estimates: 1.654bn-2.054bn bushels
Grain stocks, December 1: 10.79bn bushels
Range of estimates: 10.025bn-11.25bn bushels
Sure, some elements
of consumption are easy to gauge, such as exports, well covered by weekly data,
the soybean crush, through monthly industry reports, or use of corn in making
ethanol, through weekly production data.
(That said, Chris Gadd at Macquarie is among those who
believe that USDA analysts are a little pessimistic in their estimate of the volume
of ethanol produced per bushel of corn, a factor he says is reflected in some
anomalies in their balance sheets since the rise of the biofuels industry.)
However, how much goes to livestock feed is more difficult
Which is where the stocks number comes in, with the gap
between crop production and the volumes going into known uses put down to feed
use, and the amorphous "residual" category too.
If that sounds straightforward, it isn't.
The last quarterly stocks report, in September, prompted a
plunge of 2.6% in corn futures and 2.7% in soybeans, after inventories were
shown bigger than expected.
A year ago, corn jumped 3% at one stage after stocks were
shown smaller than the market had expected.
But at least this time the stocks figures look much more
easy to forecast - hat is, according to Mr Nelson – implying less scope for
His reasoning is based on the idea that many of the corn and
soybean stock anomalies in the past have been based on miscounting during the
early harvest, when the use of some crop straight off the combine, before the September
1 start date to the crops' 2013-14 marketing years, skews the numbers.
Forecasts for Wasde US 2013-14 soy data and (change on current figure)
Production: 3.279bn bushels, (+21m bushels)
Range of estimates: 3.24bn-3.33bn bushels
Yield: 43.3 bushels per acre, (+0.3 bpa)
Carry-out stocks: 150m bushels, (-1m bushels)
Range of estimates: 118m-180m bushels
US grain stocks, December 1: 2.161bn bushels
Range of estimates: 2.027bn-2.266bn bushels
This year, because of the late harvest, a reflection of a
rain-delayed sowing season, that will not be an issue.
"We had very, very little corn harvested in the month of August
this year," Mr Nelson said.
"That means there was probably not much August usage of the
latest harvest at all."
And that should make the stocks figures, for the quarter to
December 1, easier to estimate from known data.
Smaller cattle number
However, the spread of more than 1.2bn bushels in the spread
of guesses on corn stocks as of December 1, and some 240m bushels on the
estimates for soybeans, suggests that some analysts have other ideas.
Forecasts for US winter wheat area and (change on year)
Hard red winter wheat: 30.426m acres, (+855,000 acres)
Soft red winter wheat: 9.329m acres, (-480,000 acres)
White winter wheat: 3.533m acres, (+33,000 acres)
Total: 43.501m acres, (+411,000 acres)
Macquarie's Chris Gadd, for instance, said that as the last stocks
report, as of September 1, "captured a smaller volume of harvest than normal,"
thanks to the late running, this means that "this report should artificially
depress feed and residual demand" in the following quarter, with less time to
use the new crop supplies.
And this will be magnified by the reduced demand for feed by
beef producers, given the drop in cattle on feed.
"Even when we take into account record high slaughter
weights, we will forecast that [cattle] feed demand is down 6.6% year on year" during
the quarter, said Mr Gadd, whose estimate for December 1 corn stocks, at 11.1bn
bushels, is among the most generous.
On soybeans, one of the bones of contention is the extent of
domestic soybean use during the quarter.
Forecasts for Wasde US 2013-14 wheat data and (change on current figure)
Carry-out stocks: 557m bushels, (-18m bushels)
Range of estimates: 460m-586m bushels
US grain stocks, December 1: 1.400bn bushels
Range of estimates: 1.305bn-1.768bn bushels
Societe Generale, explaining its estimate that US soybean
inventories stood at 2.17bn bushels as of the start of last month, above the
consensus forecast, said that "we note that the US crush lagged year on year in
the [preceding quarter], partially offsetting higher US export inspections
during the same period".
But Mr Gadd, with a slightly lower stocks estimate, said
that after a slow start, reflecting the late harvest, "the crush pace has
And there are of course different estimates for harvests to
fit in too, with disagreement even over whether Friday's US corn and soybean
production numbers will prove higher, or lower, than the existing ones.
The consensus is for upgrades.
"The overwhelming consensus that the corn production number
is larger than expected. That is what farmers have been telling analysts," Mr
However, Morgan Stanley has painted a less upbeat view,
forecasting that the final US corn yield estimate "may still modestly
disappoint the market".
Late-harvested corn - which "will comprise the lion's share
of new harvest reports that the USDA uses to update its supply forecasts" in
the Wasde - pollinated in August, "when conditions turned hot and dry", the
Forecasts for Wasde South American production data and (change on current figure)
Argentine corn: 25.192m tonnes, (-808,000 tonnes)
Argentine soybeans: 55.221m tonnes, (+721,000 tonnes)
Brazil corn: 69.958m tonnes, (-42,000 tonnes)
Brazil soybeans: 89.064m tonnes, (+1.064m tonnes)
And it was "still filling grains in the waning days of
However, on soybeans, the commentators reversed, with Morgan
Stanley forecasting a 43.5 bushels-per-acre yield, up 0.5 bushels per acre from
the current USDA estimate, while Mr Nelson foresees a small downgrade.
An end to dry US conditions in the second half of the summer
"was early enough to help out corn, but not soybeans", he said.
How will the market
Consider all this uncertainty, and it is easy to see how
Friday's data could again prove market moving.
Except "it is difficult to see how it could prove too
bullish", especially for corn, given that the data will really show whether US
stocks are enormous, or just huge, expected to come in well over 2bn bushels
higher year on year, said Don Roose, president at Iowa-based US Commodities.
Meanwhile, it is "hard to get real bearish about the
production number, as we have already had some big numbers coming out", he
"What we will really find out is how much is already dialled
in to prices."
With corn and wheat futures ending in Chicago on Thursday at
multi-year closing lows, it might appear to be quite a lot.