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One number may decide how markets react to ag data spree

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How to make sense of an encyclopaedia of data in a millisecond?

That is what grain traders will be doing later on Friday, when they are presented with a heap of US Department of Agriculture crop data during live Chicago trading hours.

On offer will not only be the monthly USDA Wasde world crop supply and demand report, a main course in itself in the usual month, by data on US grain stocks and winter wheat plantings.

"This is not the first crop report released during trading hours," after Chicago extended the dealing day last year, Richard Feltes at RJ O'Brien said.

"But it is the first crop report during trading hours that incorporates stocks, production and new crop winter wheat area all in a single report that will be released late morning when the entire world is ready to pounce.

"Buckle up for volatility."

Kneejerk reaction mistaken?

One trick for traders is to go to lunch early.

Forecasts for USDA US corn data, 2012-13 and (change on current figure)

Yield: 122.6 bushels per acre (+0.3 bushels per acre) Area of crop harvested: 86.99m acres, (-707,000 acres) Output: 10.665bn bushels, (-60m bushels) December 1 2012 stocks: 8.28bn bushels, (+1.36bn bushels year on year)

Year end stocks: 667m bushels, (+20m bushels) Sources: Reuters, USDA

"Beware of chasing the initial reaction to today's report," Mr Feltes said, with the experience of key data days so far that reversals are not uncommon.

For those unable to quit their desks, another trick is to focus first on the data which are really likely to matter – and, for many observers, these lie with corn.

In part, that is because of the history of corn futures of moving the exchange limit in Chicago – five out of the last six years – on the days the USDA releases its slew of January data.

And that hardly looks unlikely this year either, given the huge disagreement between investors over corn data.

Area question

Estimates for the 2012 US harvest, for which today will see the USDA unveil a final number, vary by nearly 500m bushels, compared with 100m bushels, reflecting largely different estimates for the harvested acreage.

The USDA stands today, for the first time since October, to update its estimate for the proportion of the US corn which made it to harvest, amid some ideas that the current figure of 87.7m acres is too high given that the crop braved the worst drought since 1956.

"We expect the USDA to lower harvest area to 85.0m acres as they reflect the harvest area story," Chris Gadd at Macquarie said.

Not that all commentators agree, with Mr Feltes noting "mounting sentiment that the idea that the USDA is overstating 2012 harvested corn area may be flawed, in view of the early harvest, the prompt filing of crop insurance claims and the ample time officials had to revise harvested area" before now.

Most important number?

Still, even the corn harvest figure may pale in significance against the estimate for US stocks of the grain, accurate as of December 1.

Forecasts for USDA US soy data, 2012-13 and (change on current figure)

Yield: 39.55 bushels per acre (+0.25 bushels per acre)

Area harvested: 75.548m acres, (-152,000 acres)

Output: 2.988bn bushels, (+17m bushels)

December 1 2012 stocks: 1.98bn bushels, (-390m bushels year on year)

Marketing year end stocks: 133m bushels, (+3m bushels)

Sources: Reuters, USDA

And this figure "will determine if price rationing of this market has already occurred, or more is needed to bridge the transition to new crop supplies next fall".

Indeed, if there is some disagreement over production, there is more over the stocks number, whch factors in the great unknown of feed usage too.

Feed and residual use, as Don Roose, president US Commodities, said represents the "fudge factor" in Friday's data, being derived from the stocks number minus ethanol and export use, which are already known.

'The big fear'

And there are ideas that feed use may turn out to have been larger than the USDA is factoring in, with Macquarie, for instance, banking on a figure of 4.185bn bushels over 2012-13, 35m bushels above the USDA figure.

"The big fear is that December 1 stocks will show fairly large corn feeding in the first quarter of the 2012-13 marketing year," which started in September, said Dan Cekander, director of grain market analysis at broker Newedge USA.

"That would be constructive for old crop corn futures."

Theory and evidence

The thinking that US feed use may have been bigger than thought is based in part on theory, and calculations of the reduction of livestock numbers.

Forecasts for USDA wheat data, 2012-13 and (change on last year)

December 1 2012 stocks: 1.658bn bushels, (-5m bushels)

Marketing year end stocks: 741m bushels, (-13m bushels on current figure)

Hard red winter wheat plantings: 30.185m acres, (+322,000 acres)

Soft red winter wheat plantings: 9.039m acres, (+919,000 acres)

White winter wheat plantings: 3.458m acres, (+117,000 acres)

Total winter sowings: 42.687m acres, (+1.363m acres)

Sources: Reuters, USDA

"But chicken and hog farmers are holding on," in the hope of lower feed prices ahead, and so higher margins.

However, there is some tangible evidence too, in terms of the strength of the US cash market, despite weak demand from export merchants

"Basis levels in many parts of the country are at record highs," Mr Gidel said.

'Easier to get a handle on'

Against corn, expectations for the rest of the reports appear uncontroversial, with some increase, expected in the US soybean production estimate, and a relatively small spread of ideas over December 1 stocks.

"It is easier to get a handle on soybeans, as you know how much the US has exported, and you know what the domestic crush is from monthly industry numbers," US Commodities' Mr Roose said.

Meanwhile, wheat seedings numbers are taking something of a back seat, "being relatively overlooked", Mr Cekander said.

'Massive incentive'

There is some disagreement in the trade about these too, with the highest estimate for seedings, of 44.65m aces 3.8m acres above the lowest.

Macquarie, for instance, with a forecast towards the top of the range, said it expected a "massive" rise of 1.7m acres, to 9.8m acres, in seedings of soft red winter wheat, " as economics across the eastern Corn Belt have given a massive incentive" for planting the grain with a follow-on crop of soybeans.

Still, with dryness overhanging US crop prospects, whatever the weather, it would take some movement in the seeding number to steal attention away from the corn stocks figure which looks like taking the limelight.


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