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
The question is whether the US Department of Agriculture will
upgrade its forecast for the US corn yield this year.
'Best crop they have
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.
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
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
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
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
'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".
And there are other numbers that are attracting some
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.