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Big US crop report will answer a stack of questions

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Grain, oilseed and cotton markets have lots of big questions as they stand on the threshold of their respective 2015-16 marketing years.

How much corn will trouble-hit Ukraine export? How much wheat will Europe produce? Will Brazil rise back above the US again in the soybean export league?

And Tuesday will bring answers too all these questions, and more.

First stab

Or, at least, Tuesday will see initial forecasts, with the publication of the US Department of Agriculture's monthly Wasde crop report, including the first world balance sheets for 2015-16.

Forecasts for corn stocks in Wasde, (change on current figure)

US 2014-15: 1.864bn bushels, (+37m bushels)

US 2015-16: 1.752bn bushels, (+65m bushels)*

World 2014-15: 190.0m tonnes, (+11.5m tonnes)

World 2015-16: 182.7m tonnes, (n/a)

Sources: USDA, ThomsonReuters

* comparison with USDA Outlook Forum figure

The huge, 232m-tonne Chinese corn crop the CNGOIC talked of last week would appear to limit import opportunities, but it will be interesting to see where the USDA pegs this harvest.

The International Grains Council has, after all, pencilled in a crop of 219m tonnes.

Stocks answer

Still, ask about potential for the report moving grain futures prices, and talk moves back to the usual suspects – US carryout stocks.

Mr Roose said that "people will look at world ending stocks," particularly for wheat, for which the US, while a big force, is not as important as it is in corn and soybeans, having lost to the European Union the title of top exporter.

"Will Europe be there with a large crop?

"People will look at the Black Sea," where wheat "seems to be doing better than it was doing initially", when dry conditions got seedlings off to a poor start.

'Most important thing'

But as for corn, "US supply and demand for 2015-16 is the most important thing in the report", said Shawn McCambridge at New York-based Jefferies.

Forecasts for soybean stocks in Wasde, (change on current figure)

US 2014-15: 360m bushels, (-10m bushels)

US 2015-16: 443m bushels, (+13m bushels)*

World 2014-15: 90.2m tonnes, (+670,000 tonnes)

World 2015-16: 95.2m tonnes, (n/a)

Sources: USDA, ThomsonReuters

* comparison with USDA Outlook Forum figure

In fact, the USDA gave an insight into its thinking in February, at its annual outlook conference, when in initial estimates for the domestic balance sheet, it pegged inventories at the close of 2015-16 at 1.69bn bushels.

But that is now seen as likely an underestimate, in part because the US is seen carrying a little extra into 2015-16 than it thought three months ago.

At Allendale, Rich Nelson, chief strategist, said that "the trade is a little bit concerned about feed use of corn, given the recent increase in US bird flu cases," which are bringing about short-term poultry flock liquidation, and could curtail longer-term expansion plans too".

Yield question

In fact, US corn stocks are now seen ending next season, as shown in the Wasde, at 1.75bn bushels - with the potential for a boost on the supply side too.

Mr Nelson said: "The yield estimate will be another question," and whether the pick-up in US plantings last week, to a level well ahead of the five-year average, will spur an upgrade.

After all, the USDA has identified the planting pace as one of its five key pointers to yield potential, with fast sowings signalling better prospects.

"Some people are suggesting a figure as high as 171 bushels per acre, although we doubt that" as a figure for the Wasde, Mr Nelson said.

That would be bang in line with last year's record, and ahead of the 166.8 bushels per acre the USDA suggested in February.

"If the yield goes up, we could be talking of an ending stocks number of 1.85bn-1.9bn bushels," US Commodities' Don Roose said, which would represent a third successive annual increase, and a big negative for prices.

Five-year vs 10-year

Not so fast.

Forecasts for wheat stocks in Wasde, (change on current figure)

US 2014-15: 693m bushels, (+9m bushels)

US 2015-16: 750m bushels, (-13m bushels)*

World 2014-15: 196.7m tonnes, (-540,000 tonnes)

World 2015-16: 193.5m tonnes, (n/a)

Sources: USDA, ThomsonReuters

* comparison with USDA Outlook Forum figure

"The thing is that the five-year average includes some unusually slow planting years," said Jerry Gidel, chief feed grains analyst at Chicago broker Rice Dairy.

"The 10-year average is more like 53%," meaning that farmers are actually only modestly ahead of the typical pace in plantings, and not enough to warrant expectations of an above-trend yield.

Indeed, when thinking where the yield will actually end up at the close of 2015-16, there is reason to expect a relatively downbeat figure, with the US never having in the past managed more than two bumper results in a row, Mr Gidel said.

After all, strong harvests imply rich supplies and low prices which will tend to curtail farmer spending on crops – as appears to have been happening this year on seed – and so undermine productivity prospects.

Historical trend

Meanwhile on soybeans, while their later sowings window is seen as giving less scope for any revision to the yield, Mr Gidel pointed to another trend – that new crop carry-out stocks identified in May Wasde reports usually end up being proven overstimates.

Forecasts for South America crops in Wasde and (change on current)

Argentine corn: 24.95m tonnes, (+950,000 tonnes)

Argentine soybeans: 58.5m tonnes, (+1.5m tonnes)

Brazilian corn: 76.87m tonnes, (+1.87m tonnes)

Brazilian soybeans: 94.44m tonnes, (-60,000 tonnes)

Sources: USDA, ThomsonReuters

"That seems to tell us that whatever the Wasde tells us on Tuesday about soybean stocks, the final figure is probably going to be lower."

'Still early in the season'

Which may be just as well for soybean bulls, given that November soybean futures stood at $9.51 ½ a bushel as of Monday's close, well above the harvest low in prices that would be expected if soybean inventories indeed end up at 443m bushels.

"With that level of stocks, you would expect a harvest low of about $8.50-8.75 a bushel in November futures," Allendale's Rich Nelson said.

It may also explain why Tuesday's data may not be treated with quite the respect as estimates from some other Wasdes.

"This data is still early in the season, based on a number of assumptions, and subject to a lot of change," Mr Nelson said.

Mr McCambridge said: "I see markets reverting very quickly after the Wasde to trading the weather."

By Mike Verdin

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