Are US wheat stocks on course for a seven-year low? Are
world soybean inventories heading for a record high?
Will US farmers, for the first time in five years, achieve record
corn yield, which theory says is well within reach?
US farm officials will on Friday give their answers to these
questions, and more, in their first full forecasts for world crop supply and
demand in 2014-15.
The US Department of Agriculture's monthly crop reports are
usually much anticipated by investors.
But this one has particular importance, not only because it gives
the first forecasts for the next season, but it also updates estimates for
2013-14 which are still very much market movers.
Very much so, in
Forecasts for corn in Wasde report, (existing figure)
US ending stocks 2013-14: 1.314bn bushels, (1.331bn bushels)
Range of estimates: 1.231bn-1.435bn bushels
US ending stocks 2014-15: 1.672bn bushels, (n/a)
Range of estimates: 1.295bn-2.354bn bushels
World ending stocks 2013-14: 157.31m tonnes, (158.0m tonnes)
World ending stocks 2014-15: 159.41m tonnes, (n/a)
"We are looking at very much at a transition point for the
market," said Rich Nelson, director of stategy at broker Allendale.
"The USDA will show as some growing new crop numbers, but
that will be balanced out by tight old crop numbers.
"From here on, we will be looking into new crop numbers with
a lot more seriousness," he told Agrimoney.com.
Still, as far as price moves go, there are relatively few numbers
in the Wasde likely to cause waves, and those will be spread between new and
Certainly, the Wasde may foresee many interesting crop dynamics,
perhaps echoing the International Cotton Advisory Council in forecasting India
overtaking China as the world's top producer of the fibre.
Will the Brazil soybean harvest next year come within 3m
tonnes of 100m tonnes, as the USDA bureau in Brasilia believes, near matching
the forecast US harvest?
And will Canadian wheat production collapse by quite the 26%,
to 27.9m tonnes, that Macquarie envisages, thanks to a return to normal yields,
and a switch by farmers, still with stocks left over from last year's record
harvest, to other crops?
But ask brokers, and the important numbers to focus on in
the Wasde are pretty much the same as in any other edition of the report – US corn
and soybean stocks, and corn yields for new crop, although wheat is taking a
higher profile thanks to the drought in the southern Plains.
Forecasts for soybeans in Wasde report, (existing figure)
US ending stocks 2013-14: 134m bushels, (135m bushels)
Range of estimates: 125m-174m bushels
US ending stocks 2014-15: 307m bushels, (n/a)
Range of estimates: 200m-464m bushels
World ending stocks 2013-14: 69.77m tonnes, (69.42m tonnes)
World ending stocks 2014-15: 80.34m tonnes, (n/a)
Nonetheless, these leave plenty of scope for debate, as evidenced
by the range of forecasts for, say, soybean inventories at the close of 2013-14
– between 125m bushels and 174m bushels, with a consensus of 134m bushels, just
1m bushels below the current USDA number.
In question is how the USDA balances the strong demand, both
from (most) importers and domestic crushers, with limited supplies.
Export sales data on Thursday did little help this
conundrum, showing export sales of 40,800 tonnes of old crop soybeans last
While not much, any net sales question the existing USDA estimate
of 43.0m tonnes, given that the country has now committed to an extra 1.63m tonnes
The solution is likely to lie in an increased import figure,
many brokers believe, given the stories of China defaulting on import orders
from Brazil, which are then being switched to US buyers.
"It is likely we will see an increase in imports – that is a
valid increase," Mr Nelson said, with figures of a record 90m bushels being
mentioned, compared with the current figure of 65m bushels.
In fact, Census Bureau data this week showed the US had
imported, as of March, bought 53m bushels of soybeans in 2013-14.
"It is not difficult to see the US import estimate going
higher," said Don Roose, president at Iowa-based broker US Commodities.
"We are importing 2.5m bushels of soybeans from Canada per
month," let alone what is coming in from Brazil.
Corn follows soybeans
And there is something of the same dynamic going on in corn,
of which the US has now, at 44.17m tonnes, committed to nearly the 44.45m
tonnes that the USDA predicts for the whole season, which does not finish until
the end of August.
Forecasts for wheat stocks in Wasde report, (existing figure)
US ending stocks 2013-14: 588m bushels, (583m bushels)
Range of estimates: 570m-633m bushels
US ending stocks 2014-15: 553m bushels, (n/a)
Range of estimates: 425m-652m bushels
World ending stocks 2013-14: 185.95m tonnes, (186.68m tonnes)
World ending stocks 2014-15: 184.53m tonnes, (n/a)
"We think the USDA will raise its 2013-14 export estimate
50m bushels for corn," Mr Nelson said, a figure some see as an underestimate,
with Societe Generale, for instance, pegging exports 100m bushels ahead of the
current official forecast.
"Old crop US exports remain robust, with numbers continue to
outpace the forecast," said SocGen analyst Christopher Narayanan.
That said, Mr Roose, forecasting an upgrade of only some 25m
bushels, urged caution, noting that some of these export orders may prove ephemeral.
"A lot of these orders for corn are two way – bought from the
Black Sea," which is cheaper, "and the US, from people not sure how solid it
looks in the Black Sea" with the Ukraine crisis ongoing.
Still, it is turning to new crop numbers that the real debate
starts, as highlighted by the range of forecasts for the USDA estimate for US
ending stocks at the close of 2013-14 – ranging between 1.30bn bushels and 2.35bn
bushels, with a consensus of 1.67bn bushels.
Among the variables is whether the USDA will, to account for
the late start to US sowings, adjust its yield number, from the 165.3 bushels-per-acre
number pencilled in at its outlook conference in February.
According to Allendale's Rich Nelson, the answer is yes,
with the broker forecasting a cut to 162.5 bushels per acre.
"They have used a
lower yield in other years with late planting – 2007, 2008, 2009, 2011 and 2013,"
he told Agrimoney.com.
'Quite an assumption'
However, Darrell Holaday at Country Futures took a more
Forecasts for US wheat output in Wasde report, (2013 figure)
Hard red winter wheat: 782m bushels, (744m bushels)
Range of estimates: 610m-870m bushels
Soft red winter wheat: 467m bushels, (565m bushels)
Range of estimates: 409m-569m bushels
All wheat: 2.046bn bushels, (2.130bn bushels)
Range of estimates: 1.891bn-2.182bn bushels
"We feel the planting has been strong enough that next week
we will not be talking about a crop that was planted later that average," he
And that is even before getting to the argument of whether 165.3
bushels per acre was an appropriate figure to use in the first place.
"I do not see how the USDA can use a figure for the corn
yield which has never been achieved," said Jerry Gidel, chief feed grains
analyst at Chicago broker Rice Dairy, with the current record, from 2009, at 164.7
bushels per acre.
"Starting off with an all-time high is making quite an
Mr Gidel is working off a yield of 161 bushels per acre which,
factoring in use in line with UDSA February estimates, except with the export
figure beefed up after the recent strong performance, gives an ending stocks
number of 1.35bn bushels for 2014-15, at the low end of the range of forecasts.
'The real swing
On wheat, with a forecast of end stocks of 542m bushels for
2014-15, Mr Gidel is more in line with the consensus, at 553m bushels.
"Hard red winter wheat will be the real swing factor," he
said, referring to the US crop under threat from southern Plains drought.
"Will it come in at 760m-770m bushels, as many seem to
think, or will the USDA take a more cautious approach, and start with a higher
figure than analysts are counting on."
Macquarie, after all, has the harvest at 820m bushels
although it does also have a lowball 436m-bushel estimate for soft red winter
wheat output, saying that, with lower sowings and a fall in crop ratings year
on year, "we are assured of a sharp production loss".
In fact, Macquarie has a broadly downbeat idea of likely price
reactions to the Wasde, given the run-up in futures ahead of the report, and the
large net long position, ie bullish bets, that hedge funds have already placed.
"Given the heavily bullish skew to speculative positions
with the likelihood that both production and stocks surprise to the high side
on the Wasde report, we feel new crop corn and soybean prices will likely see a
bearish correction," the bank said.
As to whether it is proved correct may, out of all
the numbers in Friday's report, depend on just two.
"How close corn stocks get to 2bn bushels at the end of 2014-15,
and how close soybean stocks are to 300m bushels – that is what markets will be
looking out for," Mr Roose said.