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Crop, and credibility, questions raise stakes for US report

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US officials could, later on Thursday, set a key signpost for the course of annual "battle for acres", which is set to dominate the grains market for much of the spring – if they can restore their credibility with traders.

The US Department of Agriculture will at 13:30 GMT unveil its monthly Wasde crop supply and demand report which is set to be dominated by estimates for South American corn and soybean crops – and how much they are downgraded to account for undue dryness in many areas.

"The Argentine and Brazilian production concerns have added more importance to the monthly report which is typically one of least important of the year," Benson Quinn Commodities said.

The Wasde is expected, for Brazil, to peg the corn crop at 59.8m tonnes, a cut of 1.2m tonnes on the last number, and for soybeans at 71.7m tonnes, a 2.3m-tonne downgrade, according to a Dow Jones poll of analysts.

For Argentina, the corn number is expected to be cut 3.5m tonnes to 22.5m tonnes, and the soybean number by 2.0m tonnes to 48.5m tonnes

Knock-on effects

And the extents of the downgrades matter particularly for the US, for two key reasons.

Forecasts for Wasde S American crop data and (current figure)

Argentine corn: 22.5m tonnes, (26.0m tonnes)

Argentine soybeans: 48.5m tonnes, (50.5m tonnes)

Brazilian corn: 59.8m tonnes, (61.0m tonnes)

Brazilian soybeans: 71.7m tonnes, (74.0m tonnes)

Data for crop production, 2011-12. Sources: USDA, Dow Jones

"Trade sees South America's drought raising our export projections and lowering ending stocks," Tim Hannagan at Illinois-based broker PFGBest said.

The USDA is expected to lower its estimate for US corn stocks at the close of 2011-12 by nearly 50m bushels, to a 16-year low of 797m bushels.

For soybeans, for which the US export pace so far this season has been noticeably weak, the downgrade is expected to be smaller - of 6m bushels to 269m bushels.

Corn vs soybeans

The second reason is that the level of corn and soybean supplies will set the tone for a US sowing season which, as influential analyst Michael Cordonnier said, "will be very much more important than it looked to be two months ago".

"Back in October, you were looking at big South American crops for harvest at the start of 2012, which would provide a cushion to supplies on which US harvest would build," Dr Cordonnier told Agrimoney.com.

"Now you are looking at smaller South American crops than last year," putting far more stress on this year's US production to replenish world supplies.

And the degree to which US farmers favour corn or soybeans – key rivals in spring planting plans – will depend on futures price which could take a large lead from the Wasde briefing.

"Prices for corn are much better than those of soybeans at the moment," he said. The ratio between new crop November soybeans and December corn stood at 2.17 early on Thursday, among levels which have historically favoured the grain over the oilseed.

"But the report could have a big impact on prices which could change the corn-soybean relationship."

'Data problems'

That is, if investors take much notice.

Forecasts for Wasde US crop data and (current figure)

Corn stocks: 797m bushels, (846m bushels)

Soybean stocks: 269m bushels, (275m bushels)

Wheat stocks: 868m bushels, (870m bushels)

Sources: USDA, Dow Jones

Dr Cordonnier said: "People do not put as much stock in these reports as they used to," noting in particular a perception of "problems" with inventory numbers.

One challenge for USDA statisticians is that "so much corn is going to ethanol," a relatively new industry on which data collection is relatively undeveloped.

In fact, Allendale's Paul Georgy said that traders were "convinced the USDA has underestimated the ethanol usage" of corn so far in 2011-12.

'Difference of opinion'

Last week, Joseph Prusacki, director of the statistics division at the USDA's National Agricultural Statistics Service, described critics' views of official data as "just difference of opinion".

"I hope not," he replied, when asked whether USDA figures were becoming less relevant.

Thursday could offer a test of his beliefs.

By Agrimoney.com

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