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Can the super-Wasde bring volatility back to grain markets?

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Are grain markets about to rediscover volatility?

Recent sessions have been quiet on grain markets.

"I am getting anxious," said Richard Nelson, chief strategist at Allendale, flagging the dearth of price movements in corn in particular, which has traded a pattern of small daily declines to fresh three-year lows.

Chicago corn futures traded over a range of 5% last month, a day's trading range in more momentous times.

"We have to have a bit of excitement," he told

Could the US Department of Agriculture's November Wasde crop report provide it?

'Lot of moving parts'

Certainly, the report - which provides updated estimates on supply and demand for a range of crops, worldwide, and is a key event of the grain trader's calendar - should be more meaningful than the typical November Wasde.

Market expectations for Wasde corn estimates, 2013-14, (current figure)

US yield

: 159.9 bushels per acre, (155.3 bushels per acre)

Range of estimates:155.6-163.3 bushels per acre

Harvested area

: 88.097m acres

Range of estimates: 86.9-89.135m acres

US stocks

, end of season: 2.029bn bushels, (1.855bn bushels)

Range of estimates:1.799bn-2.292bn bushels

World stocks

, end of season: 175.879m tonnes, (176.28m tonnes)

Range of estimates:171.86m-180.0m tonnes

Sources: USDA, Reuters poll

But this time, with the October Wasde cancelled, the November edition looks something of a super-briefing.

"We are going to get revisions potentially to yield, acreage and demand too," said Don Roose, president of Iowa-based US Commodities.

What this gives the Wasde is "a lot of moving parts", which of course opens to the door to the potential for surprises.

Huge, or enormous?

The trouble for those hoping for a surprise in corn is that, whatever the figure the USDA produces for domestic stocks at the close of 2013-14 – the key number for prices - it is going to be large.

Sure, the Wasde looks set to cut the estimate for the number of corn acres that US farmers will harvest, thanks to a wet spring which prevented growers planting all the crop they wanted, and flooded out some that was planted.

But even if 1m acres was lost, on a harvested basis, that would represent some 160m bushels of production – small beer when analysts are expecting a crop in the order of 14bn bushels.

Besides, it looks to be more than offset by the increase to the yield estimate, from the 155.3 bushels per acre that the USDA has currently pencilled in.

Comparison with last time

"The yield estimate that analysts are expecting it 158.9 bushels per acre, but we think the market is already trading 160 bushels per acre, and even that is below the 162 bushels per acre that we think the Wasde will come in with," said Dustin Johnson at EHedger.

Market expectations for Wasde soy estimates, 2013-14, (current figure)



: 42.407 bushels per acre, (41.2 bushels per acre)

Range of estimates: 41.5-43.3 bushels per acre

Harvested area

: 75.928m acres

Range of estimates: 74.7-76.98m acres

US stocks

, end of season: 172m bushels, (150m bushels)

Range of estimates:145m-240m bushels

World stocks

, end of season: 72.282m tonnes, (71.54m tonnes)

Range of estimates: 71.14m-74.0m tonnes

Sources: USDA, Reuters poll

Indeed, he completed his bearish take by comparing this season to 2006-07, the last time stocks were so large, and when prices traded from a maximum of $4.37 ¼ a bushel to $2.22 ¼ a bushel.

"That would mean that where futures are at the moment is already at the top end of the price range."

'Very strong exports'

In fact, there is potential for some price bounce, Mr Roose said, flagging the record net short that hedge funds have built up in corn, of more than 180,000 contracts as of Tuesday last week

"Sometimes you can get a bit of an uptick, then maybe you get bad weather in South America, and the market can move bit further than you think," he said, taking a more upbeat view of demand prospects to.

"We had some very strong exports in corn" revealed on Thursday, when the USDA showed weekly export sales at 1.72m tonnes, taking the total so far for the first two months of 2013-14 to 22.3m tonnes - twice the level a year ago and 72% of already of the total the department expects for the whole of the season.

Still, a substantial corn price recovery looks unlikely, given the extent of supplies, he said.

As Australian broker Pentag Nidera put it: "The reality is that the result on Friday is largely irrelevant.

"It now looks certain that the US farmer has solved the supply problem that has supported the corn market over the last three years."

And, as the United Nations Food and Agriculture Organization, put it on Thursday that could mean flatter prices, with the agency noting that "commodity markets are becoming more balanced and less price volatile than in recent years thanks to improved supplies".

'Looks conservative'

That is not so much the case yet for soybeans, for which US stocks ended 2012-13 at pipeline levels, and for which new crop is finding ample demand.

Market forecasts for Wasde wheat estimates, 2013-14, (current figure)

US stocks

, end of season: 519m bushels, (561m bushels)

Range of estimates: 380m-575m bushels

World stocks

, end of season: 175.879m tonnes, (176.28m tonnes)

Range of estimates:171.86m-180.0m tonnes

Sources: USDA, Reuters poll

And US soybean supplies are not so ample as to be able to absorb huge requirements of them, with analysts predicting stocks finishing 2013-14 at 172m bushels – a rise year on year, but hardly generous by historical standards.

And even that number is shrouded in uncertainty, given that some believe demand may prove far bigger than the USDA is currently factoring in.

"Embedded in trade's 172m bushel stocks forecast is the assumption that 2013-14 US soy demand is up only 50m bushels versus the September Wasde estimate, which looks conservative given the ongoing brisk pace of US sales of soybeans and soymeal," Richard Feltes at broker RJ O'Brien said.

It is really the range of forecasts over demand which is behind the huge range of estimates for US soybean stocks at the close of 2013-14, ranging from a tight 145m bushels to a comfortable 240m bushels.

'Bit of a floor'

It also appears to offer investors greater hope of price volatility than corn following the Wasde.

Not that some investors believe that, if prices head downward on Friday, they ultimately have too far to all for now – a factor evident in the vast gap in hedge fund positioning in soybean futures and options, in which they retain a substantial net long, compared with their huge net short in corn.

The bottom line is that soybean futures, unlike corn prices, "do look like they have a bit of a floor," EHedger's Mr Johnson said.

"They will have trouble breaking through it until we know what South America grows.

"It may not be until the US spring planting season next year, when we know that soybeans have bought enough acres, that prices start to move much lower, assuming we get a normal growing year in South America."

But all that is still a number of Wasde reports away.


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