The relative calm in grain and oilseed markets could be about to end.
The US Department of Agriculture will at 07:30 Chicago time
(13:30 UK time) on Thursday unveil its latest monthly Wasde crop report, part
of a series which even in mild versions tends to move market.
This one looks set to be a spicy edition, which may not be able to help itself in moving prices.
the broad range of market expectations for the key numbers – US corn and
soybean production – is a guide.
'Way off beam'
"We have got this vast difference in estimates for corn and
soybean production," Dan Cekander at broker Newedge said.
On corn, analysts' forecasts are spread over a range of
1.2bn bushels, a figure bigger than the harvest in Argentina, the second-ranked
exporter of the grain.
Market estimates for October 11 Wasde corn data
Yield - average, 122.884 bushels per acre; highest, 127.0 bushels per acre; lowest, 120.0 bushels per acre
Harvested area - average, 86.136m acres; highest, 87.5m acres; lowest, 83.0m acres
Harvest - average, 10.601bn bushels; highest, 11.194bn bushels; lowest, 9.960bn bushels
Current USDA figures - yield, 122.8 bushels per acre; harvested area, 87.4m acres; harvest, 10.727bn bushels
Sources: USDA, ThomsonReuters
The gap between highest and lowest forecasts for soybean output, at 270m bushels, is equivalent
to some 10% of the harvest.
"Somebody is going to be way off beam" when the actual
numbers are released, Mr Cekander said.
That means that "even if we see numbers coming right on the consensus
guess", investors positioned at the extremes of the range could twist the
market by switching holdings to reflect the fresh USDA estimates.
The spread of forecasts - perhaps ironic so late in
the harvest, which has answered some of the questions about the size of crops -
is down the range of variables which were up for potential revision this time.
"It is not just yield, but you have got planted acres,
harvested acres, demand, everything up for grabs," Don Roose, president of US
And there is the potential for revisions to prove sizeable too, given the
advancement of harvesting, which means both corn and soybean crops look set to
be in the silo earlier than ever before.
USDA officials are "going to have all their test plots
harvested", signalling that the production numbers on Thursday could be nearer to
the final figures than normal, Jerry Gidel, chief feed grains analyst at Rice
That implies that the USDA may be willing to implement larger
changes than its traditional conservative approach might dictate.
Considering what farmers have been saying about their soybean
crops, that could mean a big rise in the estimate for US production of the oilseed.
Indeed, it may be that more bearish investors coming into the Wasde should be
sleeping most soundly.
Market estimates for October 11 Wasde soybean data
Yield - average, 37.006 bushels per acre; highest, 38.5 bushels per acre; lowest, 35.3 bushels per acre
Harvested area - average, 74.579m acres; highest, 75.4m acres; lowest, 73.3m acres
Harvest - average, 2.764bn bushels; highest, 2.903bn bushels; lowest, 2.630bn bushels
Current USDA figures - yield, 35.3 bushels per acre; harvested area, 74.6m acres; harvest, 2.634bn bushels
Sources: USDA, ThomsonReuters
"The yield reports have been coming in consistently bigger
than people expected," Mr Roose said.
Furthermore, many investors are expecting a rise in harvested
acres of soybeans, given data from growers' returns to the Farm Service Agency,
which handles farm support payments, indicating that spring sowings were higher
Such thoughts have fuelled a drop in soybean futures, which
were on Wednesday looking at their lowest close in three months, down some $2.70
a bushel from their record high set in early September.
Power of two
And that has an impact on corn too.
"You get a much strong impact on prices when both corn and
soybeans are in trouble," Mr Cekander said.
When supplies of only one are depleted, it can "start
siphoning acres off the other", and remove some market tension.
That is part of the reason why corn has dropped more than $1
a bushel from its record high in August.
Another sap is that many investors see corn sowings having
beaten earlier expectations too, meaning that even if turns out that farmers
were forced to abandon more crop than had been thought, or yields turned out
below expectations, the harvest could turn out than the USDA forecast last
Lesson from the past
But if it looks like bears hold all the cards, well, they
History is on the side of bulls.
"Be advised that the trade has overestimated October corn
production in four of last six years, including 230m-280m bushel over-shots in
2006 and 2010," Richard Feltes at RJ O'Brien said.
"More importantly, the trade overestimated Oct corn
production in each of the last two droughty years."
For soybeans, analysts have overestimated production numbers in October Wasde report, "in
five of the last seven years including both of last two stress years in 2010
Only big crops get
Furthermore, a strong rise in the soybean yield figure - and
upgrades of 4 bushels an acre close to 40 bushels an acre have been mentioned –
would represent a break from the norm.
"That would a big adjustment. And it is the kind of adjustment
you get in good years," Rice Dairy's Mr Gidel said, echoing the Chicago adage
that "big crops get bigger" as the season proceeds.
"This is not a good year. And I am not sure Kansas and
Missouri are going to add anything, or Illinois that much" to the production
'Fear of big numbers'
What bulls will also be hoping for is that, even if the USDA
does raise its crop production forecasts, the upgrades fall short of the
figures that bearish investors have position for.
"It could turn out estimates turn out supportive for prices
if there is anything other than a large number," Newedge's Mr Cekander said.
"There is fear of big production numbers."
Fear among producers perhaps, although consumers will be
hoping indeed that the late rains proved, once again, that soybeans deserve
their nickname of the "miracle crop".