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|How will the Wasde resolve thorny crop stocks condundrums?
By Agrimoney.com - Published 09/04/2014
How will US farm officials assess the past into forecasting the future?
That is one question for grain investors on Wednesday, as they gear up for the US Department of Agriculture's monthly Wasde crop report.
The last big round of USDA data, last week, included quarterly statistics on US crop inventories which revealed a few surprises, if not major shocks.
US corn stocks, as of March 1, came in 93m bushels below expectations, a reflection in part of a bigger-than-expected switch in demand from wheat, for which inventories were larger than anticipated.
So the easiest thing to assume from this historical measure is that the Wasde will raise the estimate for corn consumption over 2013-14, and cut the ending stocks figure, right?
Well, not necessarily.
Some brokers see the Wasde raising the end-stocks figure from the current estimate of 1.456bn bushels, with Macquarie forecasting a 1.478bn-bushel figure released later, the highest estimate among major commentators.
The bank has cautioned that last week's inventory figure was down to the kind of one-off anomalies for which stocks reports have become notorious, fuelling indeed their reputation as large drivers of prices in futures prices.
"With the underlying weakness in livestock demand and a large positive residual in the first quarter [to December 1], we see that stocks in future reports will likely surprise on the high side of expectations," Macquarie analyst Chris Gadd said.
"There remains the risk of a large residual find back in the second half of the season."
Corn vs wheat
But at Chicago broker Rice Dairy, chief feed grains analyst Jerry Gidel followed a more straightforward line of thinking to get to his forecast for a corn stocks figure in the Wasde of 1.306bn bushels, the lowest among major commentators.
On his maths, last week's corn stocks data implied a 32% rise in domestic use of corn in feeding livestock rose 32% year on year, factoring out the usage implied in ethanol production and exports, which are tracked by weekly data.
"That suggests the USDA's April [Wasde] feed demand could rise 100m bushels," Mr Gidel said.
"With wheat stocks where they are at, we not going to feed the wheat we did last summer," with livestock producers switching more to corn instead, he told Agrimoney.com.
'Exports still strong'
And then there are the unexpectedly high US exports to factor in too.
"Our exports are still strong on corn, and soybeans too," Jason Roose at broker US Commodities said.
The US has shipped 22.8m tonnes (899m bushels) of corn so far in 2013-14, which started in September, double the amount shipped in the same period of last season, and has a further 19.0m tonnes in outstanding sales.
This takes total commitments above 41.3m tonnes, a little higher than the USDA's current estimate for full-season exports.
Mr Gidel said: "Corn's overseas demand remains robust.
"With five months still remaining in the 2014-15 crop year and current bookings at 100% of the USDA's yearly sales outlook, this demand should rise 50m-100m bushels" in the Wasde, suggesting stocks potentially below the 1.3bn bushels he has forecast.
Scrambling around the floor
For soybeans, the range of estimates for the Wasde stocks figure is not nearly so big, ranging from the 125m bushels forecast by Archer Daniels Midland to the 147m bushels foreseen by Water Street Solutions and with a consensus of 139m bushels.
That would represent a drop of only 6m bushels on the USDA's current estimate.
Still, every bushel counts when the soybean stocks figure is already viewed at somewhere close to pipeline levels, effectively marking the floor to inventory levels, and every notch tighter implies another step higher in prices.
Last week's quarterly inventory data were actually close to forecasts.
But that does not give the USDA an excuse to leave its estimate of year-end stocks at 145m bushels, given the rate of exports, which has continued to be unexpectedly strong.
Indeed, many investors had expected a wave of cancellations to kick in last month, as needed to resolve the difference between current USDA expectations of 41.64m tonnes (1.53bn bushels) of exports in 2013-14, and the 44.51m tonnes already shipped or sold, with five months of the season to go.
However, given the estimate for stocks already at around pipeline levels, "people are afraid that the soybean stocks figure will not be permitted to go much lower", Dan Cekander at Newedge in Chicago said.
"It might go 10m bushels lower, but not below."
Balancing the books
One way for the USDA to balance the books would be to adjust the somewhat amorphous residual figure, currently at 12m bushels for soybeans.
The soybean residual figure has even gone negative in the past, often seen as a sign that the latest production figure was underestimated, and indeed may be subject to a late and rare upgrade.
Many investors in fact believe US supplies will be balanced by imports.
"How high are we willing to raise soybean and soymeal imports to satisfy our needs?" Mr Cekander asked.
The answer may be "quite a bit" in the end, with Mr Gidel saying that US soybean imports, currently pegged at 35m bushels, could end up at about 50m bushels, and US Commodities' Jason Roose flagging the financial appeal of buy-ins.
"We still have Brazilian soybeans running at a discount, and we are starting to see soybeans coming into the US," he said, with the first cargo from Brazil this season said to have arrived on Monday.
But as to whether higher imports will feature much in today's Wasde, Mr Roose voiced doubts.
"It may be too soon. The imports have only just started, and the USDA typically adopts a somewhat cautious attitude."
'Taken Argentine business'
South America's greatest contribution to Wasde revisions may be in the estimates for the region's own production, with investors seeing some scope for a downgrade in particular to Brazil's soybean crop.
The consensus is for a cut of a little over 1m tonnes to the current USDA figure of 88.5m tonnes to reflect a harvest which is proving strong, but not quite as huge as expected after some setbacks from wet weather in western areas, and dryness further south.
Not, of course, that this is South America's only contribution to the market in general, with the rate of selling, as well as the amount of crop, having a big impact on prices.
"Whatever turns up in the Wasde, a figure of about 1.4bn bushels for corn stocks would be well below 1.9bn-2bn we were looking at going into the January report," Mr Cekander told Agrimoney.com.
"Low prices have bought demand. But we have also seen South American farmers being slow to take their crop to market.
"We have been able to take a lot of business that would have been done by Argentina," where growers have hoarded crops as a hedge against a falling peso.
'Expecting higher prices'
In Brazil too, growers have been reluctant to sell.
"Parana farmers have harvested 75% of their full-season corn crop but have only sold 27% of the crop thus far," Michael Cordonnier at Soybean and Corn Advisor noted.
Growers are "expecting higher prices".
As to whether these will be achieved, US weather concerns look like having a big role, but today's Wasde may have a say too.
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