How will US farm officials assess the past into forecasting the future?
That is one question for grain investors on Wednesday, as
they gear up for the US Department of Agriculture's monthly Wasde crop report.
The last big round of USDA data, last week, included quarterly
statistics on US crop inventories which revealed a few surprises, if not major
US corn stocks, as of March 1, came in 93m bushels below
expectations, a reflection in part of a bigger-than-expected switch in demand
from wheat, for which inventories were larger than anticipated.
So the easiest thing to assume from this historical measure is
that the Wasde will raise the estimate for corn consumption over 2013-14, and
cut the ending stocks figure, right?
Well, not necessarily.
Forecasts for 2013-14 corn in Wasde report, (existing figure)
US ending stocks: 1.403bn bushels, (1.456bn bushels)
Range of estimates: 1.306bn-1.478bn bushels
World ending stocks: 157.72m tonnes, (158.47m tonnes)
Range of estimates: 156.50m-159.16m tonnes
Some brokers see the Wasde raising the end-stocks figure
from the current estimate of 1.456bn bushels, with Macquarie forecasting a
1.478bn-bushel figure released later, the highest estimate among major
The bank has cautioned that last week's inventory figure was
down to the kind of one-off anomalies for which stocks reports have become
notorious, fuelling indeed their reputation as large drivers of prices in
"With the underlying weakness in livestock demand and a
large positive residual in the first quarter [to December 1], we see that
stocks in future reports will likely surprise on the high side of expectations,"
Macquarie analyst Chris Gadd said.
"There remains the risk of a large residual find back in the
second half of the season."
Corn vs wheat
But at Chicago broker Rice Dairy, chief feed grains analyst Jerry
Gidel followed a more straightforward line of thinking to get to his forecast
for a corn stocks figure in the Wasde of 1.306bn bushels, the lowest among
On his maths, last week's corn stocks data implied a 32%
rise in domestic use of corn in feeding livestock rose 32% year on year,
factoring out the usage implied in ethanol production and exports, which are
tracked by weekly data.
"That suggests the USDA's April [Wasde] feed demand could
rise 100m bushels," Mr Gidel said.
"With wheat stocks where they are at, we not going to feed
the wheat we did last summer," with livestock producers switching more to corn
instead, he told Agrimoney.com.
'Exports still strong'
And then there are the unexpectedly high US exports to
factor in too.
Forecasts for 2013-14 soybeans in Wasde report, (existing figure)
US ending stocks: 139m bushels, (145m bushels)
Range of estimates: 125m-147m bushels
World ending stocks: 70.14m tonnes, (70.64m tonnes)
Range of estimates: 68.50m-71.90m tonnes
"Our exports are still strong on corn, and soybeans too,"
Jason Roose at broker US Commodities said.
The US has shipped 22.8m tonnes (899m bushels) of corn so
far in 2013-14, which started in September, double the amount shipped in the
same period of last season, and has a further 19.0m tonnes in outstanding sales.
This takes total commitments above 41.3m tonnes, a little higher
than the USDA's current estimate for full-season exports.
Mr Gidel said: "Corn's overseas demand remains robust.
"With five months still remaining in the 2014-15 crop year and
current bookings at 100% of the USDA's yearly sales outlook, this demand should
rise 50m-100m bushels" in the Wasde, suggesting stocks potentially below the
1.3bn bushels he has forecast.
Scrambling around the
For soybeans, the range of estimates for the Wasde stocks
figure is not nearly so big, ranging from the 125m bushels forecast by Archer Daniels
Midland to the 147m bushels foreseen by Water Street Solutions and with a
consensus of 139m bushels.
That would represent a drop of only 6m bushels on the USDA's
Still, every bushel counts when the soybean stocks figure is
already viewed at somewhere close to pipeline levels, effectively marking the
floor to inventory levels, and every notch tighter implies another step higher
Last week's quarterly inventory data were actually close to forecasts.
Forecasts for 2013-14 wheat in Wasde report, (existing figure)
US ending stocks: 583m bushels, (558m bushels)
Range of estimates: 553m-625m bushels
World ending stocks: 183.65m tonnes, (183.73m tonnes)
Range of estimates: 182.50m-185.30m tonnes
But that does not give the USDA an excuse to leave its
estimate of year-end stocks at 145m bushels, given the rate of exports, which
has continued to be unexpectedly strong.
Indeed, many investors had expected a wave of cancellations
to kick in last month, as needed to resolve the difference between current USDA
expectations of 41.64m tonnes (1.53bn bushels) of exports in 2013-14, and the 44.51m
tonnes already shipped or sold, with five months of the season to go.
However, given the estimate for stocks already at around
pipeline levels, "people are afraid that the soybean stocks figure will not be
permitted to go much lower", Dan Cekander at Newedge in Chicago said.
"It might go 10m bushels lower, but not below."
Balancing the books
One way for the USDA to balance the books would be to adjust
the somewhat amorphous residual figure, currently at 12m bushels for soybeans.
The soybean residual figure has even gone negative in the past,
often seen as a sign that the latest production figure was underestimated, and
indeed may be subject to a late and rare upgrade.
Many investors in fact believe US supplies will be balanced
"How high are we willing to raise soybean and soymeal
imports to satisfy our needs?" Mr Cekander asked.
The answer may be "quite a bit" in the end, with Mr Gidel
saying that US soybean imports, currently pegged at 35m bushels, could end up
at about 50m bushels, and US Commodities' Jason Roose flagging the financial
appeal of buy-ins.
Forecasts for Wasde South American harvest estimates (existing figure)
Argentine corn: 23.95m tonnes, (24.0m tonnes)
Range of estimates: 21.8m-25.7m tonnes
Argentine soybeans: 53.15m tonnes, (54.0m tonnes)
Range of estimates: 53.0m-57.1m tonnes
Brazilian corn: 69.66m tonnes, (70.0m tonnes)
Range of estimates: 68.0m-71.2m tonnes
Brazilian soybeans: 87.43m tonnes, (88.5m tonnes)
Range of estimates: 86.5m-89.5m
"We still have Brazilian soybeans running at a discount, and
we are starting to see soybeans coming into the US," he said, with the first
cargo from Brazil this season said to have arrived on Monday.
But as to whether higher imports will feature much in today's
Wasde, Mr Roose voiced doubts.
"It may be too soon. The imports have only just started, and
the USDA typically adopts a somewhat cautious attitude."
South America's greatest contribution to Wasde revisions may
be in the estimates for the region's own production, with investors seeing some
scope for a downgrade in particular to Brazil's soybean crop.
The consensus is for a cut of a little over 1m tonnes to the
current USDA figure of 88.5m tonnes to reflect a harvest which is proving strong,
but not quite as huge as expected after some setbacks from wet weather in western
areas, and dryness further south.
Not, of course, that this is South America's only contribution
to the market in general, with the rate of selling, as well as the amount of
crop, having a big impact on prices.
"Whatever turns up in the Wasde, a figure of about 1.4bn
bushels for corn stocks would be well below 1.9bn-2bn we were looking at going
into the January report," Mr Cekander told Agrimoney.com.
"Low prices have bought demand. But we have also seen South
American farmers being slow to take their crop to market.
"We have been able to take a lot of business that would have
been done by Argentina," where growers have hoarded crops as a hedge against a
In Brazil too, growers have been reluctant to sell.
"Parana farmers have harvested 75% of their full-season corn
crop but have only sold 27% of the crop thus far," Michael Cordonnier at
Soybean and Corn Advisor noted.
Growers are "expecting higher prices".
As to whether these will be achieved, US weather concerns
look like having a big role, but today's Wasde may have a say too.