PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 10:09 GMT, Friday, 11th Aug 2017, by Mike Verdin
AM markets: ags revive from USDA shocker amid data doubts

"Holy mackerel. Did anybody catch the number of that truck?"

That was the take of Ron Lee, at Georgia-based McCleskey Cotton, on Thursday's US Department of Agriculture Wasde crop briefing, in showing (much) higher-than-expected estimates for US and global supplies of corn, soybeans and wheat, as well as cotton.

Shifting metaphors, Mr Lee added that "the USDA gave row crop producers a unrelenting barrage of cold water to the face with a crop report that stunned virtually everyone".

After a "row crop tsunami", which saw tumbles of 3-4% in futures of all four of the above crops in the last session, "it is now back to square one for marketing our grain", Mr Lee said.

"We are back to the idea that we aren't going to run out of anything anytime soon.

 "We will see how the crop looks a month from now, but in the meantime, I guess you have to sell rallies."

'Brutally contrary'

Still, if the idea of rallies to sell into might had appeared more than distant in the last session, after ag markets were, in the world of Tobin Gorey at Commonwealth Bank of Australia, "ambushed by a brutally contrary Wasde report", in fact grains pulled off a return to positive territory at the first attempt.

Wasde 2017-18 corn data, change on previous, and (on market forecast)

US yield: 169.5 bushels per acre, -1.2 bpa, (+3.3 bpa)

US production: 14.153bn bushels, -102m bushels, (+298m bushels)

US carryout stocks: 2.273bn bushels, -52m bushels, (+270m bushels)

World carryout stocks: 200.87m tonnes, +60,000 tonnes, (+5.96m tonnes)

Sources: USDA, Agrimoney.com, Reuters

Not, it has to be said, that headway was large as of 09:55 UK time (03:55 Chicago time), and indeed somewhat scare among oilseeds.

But Chicago corn futures, for instance, for December stood up 0.3% at $3.72 a bushel, having remained clear, so far, of the 10-month low of $3.70 a bushel set in the last session.

Chicago wheat futures for September were up 0.5% at $4.42 a bushel, although having earlier matched a two-month low of $4.39 a bushel.

'A tough sell down here'

The gains reflected in part, indeed, the fact that prices are already soft, potentially limiting the obvious downside for futures.

"I find it a tough sell down here," said Benson Quinn Commodities.

CBA's Tobin Gorey said that the "corn price has now fallen below the range, excluding July, in place since October last year".

And with world corn stocks expected to remain flat, rather than grow, over 2017-18, "further [price] falls probably are not required to move the coming corn crop."

Known unknowns

But there was also something of a disbelief at the Wasde data too.

Wasde 2017-18 soy data, change on previous, and (on market forecast)

US yield: 49.4 bushels per acre, +1.4 bpa, (+1.9 bpa)

US production: 4.381bn bushels, +121m bushels, (+169m bushels)

US carryout stocks: 475m bushels, +15m bushels, (+51m bushels)

World carryout stocks: 97.78m tonnes, +4.25m tonnes, (+5.66m tonnes)

Sources: USDA, Agrimoney.com, Reuters

Some of this was down to known unknowns in terms of statistics that the USDA is expected to cut ahead, but has not yet done so thanks to methodology.

Benson Quinn Commodities noted, for instance, that "one thing the USDA did not do in this report was take into account abandoned spring wheat acres" to account for dryness in the northern US Plains, leaving harvested area at 10.5m acres, when it will likely end up significantly below that.

Data doubts

However, there was also just plain scepticism at some of the USDA findings, which for row crops were the first of the growing season to draw on field observations, with previous estimates based on historical trends, weather etc.

Darrell Holaday at Country Futures, discussing the corn yield estimate of 169.5 bushels per acre, which was well above market expectations, said that "I think as we get into many of the fields, we will find that the yields will not support this number.

"In all reality, there is concern throughout the industry of this fact."

Benson Quinn Commodities flagged the weekly USDA crop condition data "would indicate a slightly different result" for some states to the yield forecasts made on Thursday.

Crop condition conundrum

Terry Reilly at Futures International said that "some traders are baulking at USDA's state-by-state yield comparisons, which show some states with much higher yields than that of last year where good or excellent crop conditions are found to be lower year-over-year.

Wasde 2017-18 wheat data, change on previous, (on market forecast)

US all-wheat production: 1.739bn bushels , -21m bushels, (+18m bushels)

Includes winter wheat: 1.287bn bushels , +8m bushels, (+9m bushels)

Includes other spring wheat: 402m bushels , -21m bushels, (+9m bushels)

US carryout stocks: 933m bushels, -6m bushels, (+26m bushels)

World carryout stocks: 264.69m tonnes, +4.09m tonnes, (+8.0m tonnes)

Sources: USDA, Agrimoney.com, Reuters

"One example was Nebraska," where the proportion of corn rated good or excellent was, at 61% as of Sunday, down 16 points year on year.

Yet the USDA on Thursday "reported the August yield for Nebraska at 183 bushels per acre, 5 bushels above the final yield for 2016".

That said, Mr Reilly said it would be more appropriate to compare the yield estimate with the year-ago figure, rather than the final one.

"USDA reported the Nebraska August 2016 corn yield at 187 bushels per acre, but the final yield ended up at 178 bushels per acre."

Russia upgrade

Some surprise USDA data did, however, receive back-up from other sources, with a 5.5m-tonne hike in the Russian wheat crop estimate to a record 77.5m tonnes, for instance, supported by overnight data from Moscow-based analysis group SovEcon.

SovEcon lifted its forecast for the overall Russian grains harvest by 8.2m tonnes to 125.2m tonnes, including a 5.0m-tonne upgrade to 77.9m tonnes in the wheat production estimate.

"The main reasons for the upgrade are record crop yields, good conditions of spring grains and a hefty level of moisture in the soil," the group said.

With the rouble weakened back to 60 per $1, Russia looks like being a formidable competitor in wheat exports this season, limited only perhaps by its logistics.

'Good reason to shoot high'

Soybeans, however, did ease a further 0.1% to $9.39 a bushel for November delivery, having suffered a particular surprise in the Wasde, in which the USDA raised its estimate for the US soybean yield this year, rather than trimming it as investors had expected.

Richard Feltes at RJ O'Brien said that it was "interesting to note that USDA's 49.4 bushels-per-acre soy yield is the highest ever for August and the second highest for final yield, if realised.

"One can only assume that USDA has good reason to shoot high - perhaps driven by the last six years, which all posted August- to-final gains in US soybean yield."

While officials had sent a "strong message that while corn yield has been clipped, there is no evidence to suggest that soy yield potential has experienced a non-recoverable loss in yield potential".

'Pretty apoplectic'

Still, there is some scepticism here too, given the relatively weak condition of the US soybean crop as noted in weekly official crop progress data.

"The market is pretty apoplectic about the increase in soybean yield versus crop condition ratings that are the lowest in the last five years," said Benson Quinn Commodities.

CBA's Tobin Gorey flagged that soybean futures were already pretty low too, saying that "prices are now at a levels where the market did not have any weather worries in the price".

Elsewhere in the oilseeds complex, palm oil reversed most of its gains of the last session, shedding 0.9% to 2,638 ringgit a tonne in Kuala Lumpur.

But canola for November added 0.3% to Can$507.90 a tonne in Winnipeg, amid continued concerns over global rapeseed/canola supplies, as highlighted by Oil World.

The Wasde cut by 500,000 tonnes, to 20.5m tonnes, the estimate for the Canadian canola crop, although this forecast remains well above ideas from some other commentators.

'Not sure how many people believe it'

Back to cotton, and the New York December contract added 0.3% to 68.33 cents a pound recovering indeed from a limit-down finish to the last session on a huge upgrade by the USDA to its forecast for the domestic crop, now pegged at an 11-year high.

Wasde 2017-18 cotton data, change on previous, (on market forecast)

US carryout stocks: 5.80m bales, +500,000 bales, (+1.0m bales)

World carryout stocks: 90.09m bales, +1.36m bales, (+1.7m bales)

Sources: USDA, Agrimoney.com, Reuters

"I have always heard that 'big crops get bigger', but I'm not sure how a 20.5m-bale crop off of 11m acres can get any bigger," McCleskey Cotton's Ron Lee said, flagging some scepticism over the USDA's harvest estimate here too.

"I'm not sure how many people believe it and we still have a relatively long way to go before this cotton is bound by ties and a bag.

"You would have to have: timely, but not excessive rains to continue through early September; zero hurricane/tropical storm activity, and; a perfect fall with a very late frost in West Texas for all of this to come together."

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