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Is September the new October? Key report poses the question

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Is September the new October, in the US agricultural production world?

That matters, because the US Department of Agriculture is due later on Wednesday to unveil much-anticipated data, in its monthly Wasde report, with the potential to cause huge swings in prices, in which corn production data will take centre stage.

The harvest figure will depend largely on the estimate for the number of acres which have made it to harvest following the worst US drought since 1956, rather than being chopped for silage or simply disked back into the soil.

Indeed, in attempting to guess the Wasde figure for harvested acres over which corn commentators are as divided as they are for the high-profile yield estimate.

Guesses range from 83.0m acres to 87.4m acres, the current USDA figure – which, with each 1m acres representing some 120m bushels of corn output, means some 500m bushels of supplies is at stake.

September vs October

And the answer is not just a matter of gauging actual crop losses, but USDA methodology too.

Consensus estimates, Wasde US corn data 2012-13 and (current figure)

Harvested acres: 86.173m acres, 87.4m acres)

Yield: 120.595 bushels per acre, (123.4 bushels per acre

Production: 10.380bn bushels, (10.779bn bushels)

End-stocks: 592m bushels, (650m bushels)

Source: Reuters poll

This would lean towards a higher acreage figure.

But will it this time?

"Enough corn has been cut for silage for the USDA to have a good idea of how much is left. And Farmers are well ahead with the main harvest because the crop is so advanced."

In North Dakota for instance, identified by a crop tour last month as holding particularly poor corn potential, 38% of silage corn had been chopped by Sunday, according to USDA data.

"So this report could become very like an October report in many ways," meaning a drop in acreage could after all be on the cards.

'Carry greater weight'

Not, of course, that this means that the October report will become a mere formality.

"Be mindful that the upcoming October crop report will carry greater weight with the trade than Wednesday's row crop production updates, which in the past have occasionally proven misleading," Richard Feltes at RJ O'Brien said.

"The USDA should have most of their field test plots harvested and weighted next month," besides being able to factor in updated data from farmers' insurance returns.

Yield guesses

For now, the market expectation is for a cut to 120.6 bushels per acre in the USDA's estimate for the corn yield, the lowest since 1995, and down from the current 123.4 bushels per acre.

Consensus estimates, Wasde US soy data 2012-13 and (current figure)

Harvested acres: 74.447m acres, 74.6m acres)

Yield: 35.792 bushels per acre, (36.1 bushels per acre

Production: 2.657bn bushels, (2.692bn bushels)

End-stocks: 109m bushels, (115m bushels)

Guesses for the soybean yield figure range from 34.5 bushels per acre, representing a 1.6 bushels-per-acre cut to the USDA estimate, to 36.7 bushels per acre.

That would be a 0.6 bushels-per-acre rise, an idea which has gained increasing support from an improvement in the condition of the US crop, supported by reports from early harvest.

Mr Feltes noted for soybeans a "trickle of better-than-expected new crop yield updates, although seasoned traders remain cautious about reading too much into early returns".

Abandonment figures are seen as less important for soybeans, given that any yield above 2 bushels per acre will be profitable to reap, given current prices and harvesting costs estimated by US Commodities at about $28 per acre.

Price impact

Still, if guessing the numbers is one challenge for investors, forecasting the market reaction adds another layer of complication.

For corn, "investors have definitely factored a lot of bad stuff into prices, factoring in a production number of perhaps 10.35bn-10.40bn bushels", Jerry Gidel, chief feeds grains analyst at broker Rice Dairy, said.

"But anything below that level is going to get attention."

Indeed, the recent sell-off by funds as potentially created scope for rebuilding long positions and fuelling price rises.

"Recent fund liquidation has them rearmed for a bullish report should it transpire," Rory Deverell, risk manager at FCStone, said.

'Inclined to extend coverage'

Even if the report turns out bearish, the reaction may be relatively muted, Mr Feltes said, if investors are still holding out for more definite results from the October report.

"There may be some reluctance to fully embrace potentially bearish yield updates - especially with jury still out on extent of feed rationing in corn thus far and a record pace of new crop US soy export sales,"he said.

"End users may be inclined to extend coverage on weakness following a bearish September crop report."

'Easy for prices to fall'

However, with the technical picture for crops worsened, and the sharp drop in crop prices at this time last year alive in investors' minds, US Commodities' Don Roose was not so sure.

"It is the hardest time of year for markets to rally at this point," with the harvest bringing a ramp up in supplies and handing some power, if temporarily, to buyers.

"It is easy for prices to fall. You will need a compelling story to keep prices supported."


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