Don't be surprised if grain markets head into volatility
later this week.
For Thursday and Friday bring a key event for investors in
the first official forecasts, that really count, for 2017-18 US crop prospects –
which in turn have a big say in the outlook for prices worldwide.
Sure, the US Department of Agriculture in November unveiled
initial estimates for 2017-18 (and beyond) within its long-term "baseline" forecasts.
But the statistics revealed at this week's annual USDA Outlook
Forum take the data from somewhere near the back of the envelope to good
They factor in the likes of Australian grains harvest
results and stronger of ideas of South America's 2016-17 production of the likes
of corn and soybeans, beside US winter crop plantings data - and latest price incentives
to farmers being offered by futures markets.
And the Outlook conference area estimates, offering fewer assumption than those used forming forecasts for the likes of production and export, are viewed with particular interest.
Corn vs soybeans
Market price signals are being particularly closely watched as
regards corn and soybeans – key competitors in the US spring sowings programme.
Already, in the baseline report, the USDA forecast a swing
away to soybeans – domestic sowings of which were seen at a record 85.5m acres,
which would represent a rise of 2.1m acres – from corn, plantings of which were
pegged at 90.0m acres.
USDA 2017-18 crop sowings forecasts in baseline report, and (estimate for 2016 planting)
Barley: 2.9m acres, (3.1m acres)
Corn: 90.0m acres, (94.0m acres)
Sorghum: 6.3m acres, (6.7m acres)
Soybeans: 85.5m acres, (83.4m acres)
Upland cotton: 10.5m acres, (9.9m acres)
All-wheat: 48.5m acres, (50.2m acres)
Data for 2016 taken from latest USDA Wasde report
That would represent a fall of 4.0m acres on the latest area
estimate for last year.
Just how big?
But many commentators have forecast an even bigger swing,
given the elevated ratio of new-crop November soybean futures compared with the
equivalent corn contract, for December. (Comments from observers from CF Industries to Societe Generale on US sowings prospects can be found by clicking here.)
At 2.59 on Tuesday, the ratio remained well within territory
seen as encouraging farmers to plant soybeans over corn.
(A figure of 2.0 or below is seen by many investors as
definitely favouring corn, with some debate over figures between there and 2.50.)
Informa Economics pegs US soybean sowings this year at
88.65m acres, and some observers have even seen them topping 90m acres to,
unusually, exceed corn plantings.
Still, US spring plantings programmes are not just about corn
and soybeans but a plethora of other crops too, including cotton, which is
itself seen fighting hard for farmers' attention through New York futures
prices which remain close to the highest levels since July 2014.
Selected other forecasts for US 2017 corn and (soybean) sowings
AgResources: n/a, (86.7m acres)
AgriSource: 89.7m acres, (90.2m acres)
Farm Futures: 90.49m acres, (90.52m acres)
Futures International: 92.25m acres, (N/A)
Informa Economics: 90.489m acres, (88.647m acres)
Rabobank: 91.0m-91.5m acres, (86.4m acres)
The National Cotton Council industry group earlier this
month forecast US upland cotton sowings at 10.75m acres this year, above the
10.5m acres outlined in the USDA's baseline report.
And even that figure factored in strong competition the likes
of peanuts in some states.
And then there is spring wheat too, popular in more northern
states, and prospects for which as a sowings option had been looking much
enhanced until a tumble in values late last week.
Extra area to play
After all, overall US wheat production prospects have taken
a large dent, with official data last month pegging winter wheat sowings at the
lowest in well over a century.
At 32.38m acres, winter wheat plantings were down 3.75m
acres year on year, and 1.76m acres below market expectations.
That has only added to the area in play for spring plantings
programmes this year - and the uncertainty over what acreages will emerge.
And this as the US sowings programme is already beginning in
some southern US states, ushering in the process of reality overtaking
But that is a whole different chapter of the estimates
process, which will not start in earnest for some weeks yet.