PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 08:40 GMT, Friday, 11th Jul 2014, by Mike Verdin
Wasde poses one big question. There are many others too

There is one big question grain investors are investors are asking of Friday's big crop report.

But, while it is getting most of the airplay, it is not the only number they will be looking at. And it may not even end up being the most important.

The question is whether the US Department of Agriculture will upgrade its forecast for the US corn yield this year.

'Best crop they have ever seen'

USDA officials raised some eyebrows started off their yield estimates with a record figure, of 165.3 bushels per acre, before crop had even been put in the ground.

Forecasts for corn in Wasde report, (existing figure)

US ending stocks 2013-14: 1.232bn bushels, (1.146bn bushels)

Range of estimates: 1.146bn-1.350bn bushels

US ending stocks 2014-15: 1.774bn bushels, (1.726bn bushels)

Range of estimates: 1.535bn-2.309bn bushels

World ending stocks 2013-14: 169.48m tonnes, (169.05m tonnes)

World ending stocks 2014-15: 184.53m tonnes, (182.56m tonnes)

Sources: USDA, ThomsonReuters

But their optimism has proved justified so far. Put it down to El Nino or not the weather pattern typically brings the Midwest benignly cool and wet summers for corn growing but the crop entered July with one of its highest ever condition ratings.

 "A lot of farmers have the best crop they have ever seen," Dustin Johnson at broker eHedger said.

And that has sparked talk of an upgrade in the yield estimate to an even higher record high.

'Imply a record yield'

But will the USDA act so early in the season, before the vast majority of US corn has gone through the pollination process which is especially weather sensitive?

The answer appears to be yes, at least according to the commentators that Agrimoney.com spoke to.

At Allendale, the Chicago broker, chief strategist Rich Nelson acknowledged that yield revisions in July Wasde reports were not the norm. But nor are they that uncommon, occurring in eight of the past 20 years five downgrades and three upgrades.

"Our weather and yield models imply a record yield of 167.8 bushels per acre," Mr Nelson said, enough to take the US corn harvest above 14bn bushels for the first time.

 Large gap

But corn yield is actually not all that investors should be looking at. Indeed, it may not be quite that important, for now, after all.

Forecasts for soybeans in Wasde report, (existing figure)

US ending stocks 2013-14: 128m bushels, (125m bushels)

Range of estimates: 111m-156m bushels

US ending stocks 2014-15: 418m bushels, (325m bushels)

Range of estimates: 320m-489m bushels

World ending stocks 2013-14: 67.59m tonnes, (67.17m tonnes)

World ending stocks 2014-15: 84.79m tonnes, (82.88m tonnes)

Sources: USDA, ThomsonReuters

"People have already made their own assessments of what the yield will be," eHedger's Dustin Johnson said.

"If the USDA does not raise its yield forecast, they will put that down to it being conservative, and go ahead and trade their own figure anyway."

In fact, there is more to the vast divergence in estimates for US corn stocks at the close of 2014-15 ranging from 1.535bn at the bottom of the range to a figure 50% bigger, 2.309bn bushels at the top.

Similarly, for soybeans too, the highest estimate for end-2014-15 US inventories, of 489m bushels, is more than 50% higher than the lowest, of 320m bushels.

And there is little expectation of the soybean yield estimate being raised so early, with its crucial development period, pod-setting, happening next month.

Besides, "with soybeans, it so much harder to judge what the yield will be, compared with corn," Mr Johnson said, and the USDA does not begin its more detailed actual crop sampling until next month.

'Breaking the laws of economics'

There is also the consumption factor to think of.

"Whatever the USDA put in for the supply side, it will probably be more interesting to look how they fill in demand," said Don Roose, president at Iowa-based broker US Commodities.

"Will they say that with prices going down, that will mean extra demand?"

That is already a factor that has puzzled one leading commentator, who told Agrimoney.com that the USDA's current estimate of domestic feed demand for corn falling 50m bushels in 2014-15, to 5.25bn bushels, despite  lower prices expected next season appeared to be "breaking the basic laws of economics".

"When prices go down, consumption is meant to go up," the commentator said.

'Fatten to the brink'

At Chicago broker Rice Dairy, Jerry Gidel said: "The demand scenario is an interesting one."

Forecasts for wheat harvest in Wasde, (existing figure)

Hard red winter: 719m bushels, (720m bushels). 2013: 744m bushels

Soft red winter: 454m bushels, (454m bushels). 2013: 565m bushels

All winter wheat: 1.378bn bushels, (1.381bn bushels. 2013: 1.534bn bushels

Other spring wheat: 536m bushels, (n/a). 2013: 534m bushels

All wheat: 1.969bn bushels, (1.942bn bushels. (2.130bn bushels)

Sources: USDA, ThomsonReuters

The USDA's relatively lowball estimate for feed demand appeared to indicate that it believe that the outbreak of porcine epidemic diahorrea virus (PEDv) undermining efforts to boost the US hog herd "will end up being a long, long-term problem", he said.

In fact, potential for rebuilding herds meant that the feed number may end up rising, to some 5.45bn-5.5bn bushels in 2014-15.

But that assumes, of course, that the feed number this season is right. Allendale, for instance, sees a 50m-bushel downgrade, after the USDA last week, in its estimate for US inventories as of June 1, pegged them well above market expectations, implying disappointing consumption.

EHedger's Mr Johnson believes even the 2014-15 feed figure may be too large too, given low hog and cattle numbers, "unless you assume that livestock producers will fatten to the brink".

'Ample spring moisture'

And there are other numbers that are attracting some questions too.

Will the Wasde lift the estimate for US wheat production?

"Historically, the trade tends to underestimate winter wheat production in July [Wasdes]," said Richard Feltes at RJ O'Brien.

"This may be repeated on Friday given better-than-expected soft red winter wheat yields, improving hard red winter wheat yields as harvest pushes northward, and ample spring moisture across northern fringe of Plains winter wheat belt."

There is some expectation too of a so-called negative "residual" figure for 2013-14 US soybeans in essence, recognition that the previous crop production estimate was too low, but with corrections not typically taking place until September, when more information is available.

'Bit of a formality'

Also under the microscope are figures for the Russian wheat harvest, crops in India where the monsoon has started week and for canola in Canada, where unduly wet weather has prevented sowings, and inundated some of what was planted.

Sure, there is a feeling that, as one commentator, said, "Friday's Wasde will be a bit of a formality.

"People have got a pretty good idea of what is going on they do not need USDA reassurance. I do not see this as a market mover."

But then, there were some telling Agrimoney.com similar things too before the June 30 reports which have sent prices tumbling.

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