If ever there is a time to expect volatility in commodity
prices, it is one of the days, four a year, that the US unveils estimates for its
These inventory reports have a habit of producing surprises.
And these in turn have a tendency to feed swings in grain and soybean prices.
The stocks report that the US Department of Agriculture
produces on Monday has the extra kicker of being accompanied by revised
estimates for sowings too.
That is not straightforward either, with persistent rains in
the north west Corn Belt and the northern Plains provoking late doubts over
These are only being enhanced by a debate over whether the
land will be counted as unplanted, or abandoned - meaning it was lost after
seeding, and will be accounted for in a separate line of the balance sheet.
Still, it is the stocks report which is being anticipated
with most concern.
"Usually, it is the stocks report which is more important
than the acreage numbers," Rich Nelson, chief strategist at Allendale, told
Forecasts for UDSA corn data, June 1 stocks and spring plantings
Stocks - consensus forecast: 3.722bn bushels
Range of forecasts: 3.046bn-3.950bn bushels
June 1, 2013: 2.766bn bushels
Sowings - consensus forecast: 91.725m acres
Range of forecasts: 91.00m-92.20m acres
2013 sowings: 95.365m acres
Sources: USDA, ThomsonReuters
"It is historically the report which has provided the
The level of uncertainty is evident in the extent of divergence
in estimates, for instance, for corn stocks.
All commentators agree that stocks will be higher than a year
before, following the bumper 2013 harvest.
But how much? Forecasts range from a little over 3.0bn
bushels to nearly 4.0bn bushels.
And, given that stocks, as compared with demand, are a highly
important pricing metric, the impact on futures of a high or low stocks figure
can be significant.
The difficulty in assessing the stocks figure is that, while
last year's harvest is known, and markets have a pretty good idea of some
aspects of corn use, such as in making ethanol or for exports, for which there
are weekly reports, one large demand area in livestock feed remains pretty
Some idea can be gained from livestock numbers, through for
example the USDA reports on cattle on feed or broiler egg sets.
But only some idea.
Corn demand will vary, for instance, on the weights to which
livestock are fattened, and the price relationship with alternative feed
seem very weak'
Nonetheless, if history is a guide, it is those more
negative on prices which will come out smiling today, with the corn inventory
number beating expectations in five of the last seven years.
Forecasts for UDSA soybean data, June 1 stocks and spring plantings
Stocks - consensus forecast: 378m bushels
Range of forecasts: 334m-440m bushels
June 1, 2013: 435m bushels
Sowings - consensus forecast: 82.154m acres
Range of forecasts: 80.50m-84.00m acres
2013 sowings: 76.533m acres
Sources: USDA, ThomsonReuters
And there are plenty seeing such an outcome this time too.
Macquarie's Chris Gadd, for instance, said that "lower feed
demand is likely to cause stocks for corn to surprise above expectations.
"Underlying feeding dynamics seem very weak in the US.
"Feeding of corn in the US looks far from exciting as we are
seeing no real major recovery in animal herd size," he said, an observation
which gained support from data late on Friday showing the US hog herd shrinking
by 5.0% in the year to the start of June, above the 3.0% decline expected.
How much to start
Still, it is the soybean stocks figure which may arguably
prove more important from a pricing perspective, given the paucity of US
supplies - meaning that any difference from market expectations could have a
large impact on what buyers are seen needing to pay to secure stocks.
"The focus is really 100% on soybean stocks," Allendale's
Rich Nelson said.
There is a large gap in forecasts here too, with the top
estimate, of 440m bushels, 32% above the lowest one, of 334m bushels.
And there is also an extra uncertainty.
Although the trade will have a pretty good handle on soybean
exports and domestic crush from other data, there are many who believe that the
estimate the USDA came out with for last year's harvest was too small, meaning
potentially larger-than-expected stocks as of June 1.
"If we get a figure of 375m, 380m, 385m bushels for soybean
stocks, then that implies that last year's crop was underestimated," said Dan
Cekander, director of grain research at broker Newedge USA.
Forecasts for UDSA wheat data, June 1 stocks and plantings
Stocks - consensus forecast: 598m bushels
Range of forecasts: 560m-633m bushels
June 1, 2013: 718m bushels
Sowings - consensus forecast: 55.818m acres
Range of forecasts: 54.80m-57.00m acres
2013 sowings: 56.156m acres
Sources: USDA, ThomsonReuters
"We would get a stocks number down close to 330m bushels if
the crop number is accurate."
As an extra uncertainty, US imports of soybeans are playing
an unusually large role too, with volumes expected to hit a record high in
2013-14 as the US seeks to replenish its oversold domestic supplies.
But actual trade data appear, so far, to be showing
"We are not set up in the US to take soybeans back up the
Mississippi river," said Jerry Gidel, chief feed grains analyst at Rice Dairy.
Break from history?
Still, history suggests that investors typically underestimate
June 1 soybean stocks too, with the actual number exceeding forecasts in five
of the last seven years
They are also, on plantings, usually too pessimistic on corn
sowings too, underestimating the June number in five of the last seven years,
if showing less of a trend in soybeans.
In fact, the corn acreage figure as of the end of June typically
shows an increase over the initial forecast, made in March a relationship which
has held true for nine of the last 10 years, according to Chicago broker RJ O'Brien.
But here there is a definite idea around that today's figure
will show a break from history.
Although traders are indeed expecting today's estimate to
show a small increase, of some 34,000 acres, from the March figure of 91.691m
acres, concerns over the extent of rains damage, and DuPont's profit, have
raised big questions over these forecasts.
"I definitely detect a sense that people are now expecting
the corn area to come in low, but soybean planting area will come in high,"
Newedge's Dan Cekander said.