PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 18:09 UK, 12th Oct 2017, by Mike Verdin
Soy futures jump on surprise US yield cut. Corn gains too

Soybean futures jumped to their highest levels since July, helping corn futures recover from contract lows, after US officials made a surprise downgrade to their forecast for the domestic yield.

The US Department of Agriculture, which two weeks ago cut its estimate for the 2016 US soybean yield, on Thursday downgraded the 2017 one too, by 0.4 bushels per acre to 49.5 bushels per acre.

The unexpected move, which contrasted with investor expectations of a small increase in the 2017 yield figure, was offset in production terms by an increase in the estimate for soybean sowings, which were now seen topping 90m acres for the first time.

"Acreage updates were made in several states based on a thorough review of all available data," the USDA said, while stressing in its yield estimate "a lower pod count from the previous year" in major growing states.

Nonetheless, the outcome of the revisions was to leave the USDA's estimate for US soybean carryout stocks below market expectations, although they will remain the highest in 11 years.

'Friendly' soy, 'bearish' grains

Chicago soybean futures for November, which stood only marginally higher ahead of the data, extended their gains to 2.4% in the aftermath, taking the contract to $9.88 a bushel, their highest in more than two months.

US soy forecasts 2017-18, change on previous and (on market estimates)

Harvested area: 89.471m acres, +740,000 acres, (+454,000 acres)

Yield: 49.5 bushels per acre, -0.4 bushels per acre, (-0.5 bushels per acre)

Production: 4.431bn bushels, unchanged, (-16m bushels)

Year-end stocks: 430m bushels, -45m bushels, (-17m bushels)

World year-end stocks: 96.05m tonnes, -1.48m tonnes, (-430,000 tonnes)

Source: USDA, Reuters, Agrimoney.com

The gain was credited with sparking a recovery in futures in corn too, whose immediate reaction to the USDA data, released in the much-watched Wasde crop report, had been to extend earlier losses, sending the December contract to a contract low of $3.42 a bushel.

An hour after the data was released the contract stood at $3.50 a bushel, a gain of 1.3% on the day.

Benson Quinn Commodities termed the Wasde "friendly" to soybean prices, in "lowering yield and carryout" estimates.

While the report was "bearish" for corn - and indeed wheat prices, futures were "following soybeans" higher, the broker said, viewing elevated ideas on supplies of the grains as already "priced in" by investors.

Corn vs soy

In fact, the USDA lowered its estimate of US corn sowings this year by 500,000 acres to 90.4m acres leaving the figure only 200,000 acres above that for soybeans.

US corn forecasts 2017-18, change on previous and (on market estimates)

Harvested area: 83.119m acres, -377,000 acres, (-412,000 acres)

Yield: 171.8 bushels per acre, +1.9 bushels per acre, (+1.7 bushels per acre)

Production: 14.280bn bushels, +96m bushels, (+76m bushels)

Year-end stocks: 2.340bn bushels, +5m bushels, (+51m bushels)

World year-end stocks: 200.96m tonnes, -1.51m tonnes, (-950,000 tonnes)

Sources: USDA, Reuters, Agrimoney.com

Indeed, the corn area downgrade was larger than that expected by investors, but was more than offset in production terms by a bigger-than-forecast yield upgrade, by 1.9 bushels per acre to 171.8 bushels per acre, the second largest result on record.

Still, upgrades to estimates for US feed and industrial use of the grain limited the increase in the US stocks forecast for the end of 2017-18.

The USDA cut its forecast for global stocks of corn, citing reductions to estimates for countries such as China and Mexico.

'Second highest supplies on record'

For wheat, the USDA made an unexpectedly large increase to its forecast for domestic stocks at the close of 2017-18, raising the figure by 27m bushels to 960m bushels, reflecting reduced expectations of use of the grain in livestock feed.

Wheat stocks estimates, end 2017-18, change on previous and (on market forecast)

US: 960m bushels, +27m bushels, (+14m bushels)

World: 268.13m tonnes, +4.99m tonnes, (+5.33m tonnes)

Sources: USDA, Reuters, Agrimoney.com

Inventory data released late last month "indicated lower-than-expected June-August disappearance", the USDA said.

"Additionally, projected 2017-18 US corn supplies are the second highest on record, which is expected to dampen wheat feed and residual use for the rest of" this season.

Meanwhile, the forecast for world wheat inventories at the end of 2017-18 was handed a large and unexpected upgrade, reflecting higher figures for a number of origins besides the US, and including Russia and the European Union.

The drought-hit Australian was downgraded by 1.0m tonnes to a nine-year low of 21.5m tonnes.

A post-report rally in wheat futures fizzled out to leave Chicago's December contract down 0.25 cents at $4.32 a bushel an hour after the Wasde was published.

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