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The big question for the USDA's Wasde report

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Are crop markets set for fireworks?

Traders are braced for hefty moves in crop futures on Wednesday, given that it brings an especially important edition of the US Department of Agriculture's monthly Wasde crop report on global crop supply and demand – the one which gives the first full list of estimates for 2011-12.

"This is one of the most important reports of the year, in that it gives a foundation for everyone to work off," Don Roose, president of US Commodities, told

At rival broker PFG Best, Tim Hannagan said: "This is going to be a very volatile day, as we have to price in inventory changes for two years", with 2010-11 estimates still being adjusted too.

"Any surprises could easily have the market move to limit trade", that is the maximum daily moves allowed on exchanges, "especially on 2012 contracts as they are more thinly traded."

The big number

And potentially the key piece of data which could get markets moving is the extent of recovery in US corn stocks - currently forecast by the USDA to end 2010-11 at 675m bushels, their lowest level relative to demand since the Great Depression.

Expectations for Wasde corn estimates, (current estimate)

End 2010-11

US stocks: 661m bushels, (675m bushels)

Highest estimate: 700m bushels; lowest estimate, 565m bushels

End 2011-12

US stocks: 808m bushels, (N/A)

Highest estimate: 1.03bn bushels; lowest estimate, 574m bushels

Source: Thomson Reuters

And there are some observers, notably Citigroup, which expect a 1bn bushel-plus number.

However, broker such as Country Hedging and Global Commodity Analytics suggest something under 600m bushels.

Who will prove correct?

The big question

That will likely depend on how much the USDA takes into account recent weather setbacks which, with damp slowing US corn sowings to one of their slowest ever paces, could be interpreted as cutting likely sowings and yield prospects too.

"Typically, the USDA starts with a fairly price negative number," Linn Group analyst Jerrod Kitt said.

"They start out with a higher crop number and ratchet it down with each report," he added, noting that this had happened, for example, in 2010, when rosy early forecasts had given way to a succession of downgrades.

So the USDA might not be expected to make too many changes from an initial yield forecast of 161.7 bushels per acre, and sowings of 92m acres.

'Give a signal'

Not so fast, said Jerry Gidel at North America Risk Management Services.

Expectations for Wasde soybean estimates, (current estimate)

End 2010-11

US stocks: 153m bushels, (140m bushels)

Highest estimate: 180m bushels; lowest estimate, 138m bushels

End 2011-12

US stocks: 167m bushels, (N/A)

Highest estimate: 210m bushels; lowest estimate, 122m bushels

Source: Thomson Reuters

He said: "They have got to give a nod to what is going on here. You have got to, in circumstances where crop supplies are so low, give a signal to the industry to get out there and get these crops in the ground.

"If you end up putting prices down, there is no incentive for farmers to battle through."

Still, Mr Gidel could not see the USDA taking the yield figure beow 160 bushels an acre, which is equivalent, over 92m acres, to knocking more than 150m bushels from production hopes.

Coincidentally, that yield was also the level at which Goldman Sachs revealed it had set its US forecast, saying that May rains one inch above average lowered yield prospects by 1.4 bushels per acre.

Easy pickings?

Where Mr Gidel and Mr Kitt agreed was that stocks would, whatever is announced on Wednesday, end 2011-12 at less than 800m bushels, with Linn forecasting that ultimately sowings hopes may be disappointed.

"There is a limit after which farmers are not going to continue planting corn, even if they have not reached their target," Mr Kitt said.

The question then is whether they sow ground instead with soybeans, which can be later sown, as many analysts expect, leading to some forecasts that US stocks of the oilseed could jump 50% from current forecasts to 210m bushels during 2011-12.

"We believe that farmers who do not get corn planted will take instance instead," he said.

With corn prices for insurance payout set early in the year a relatively high levels, farmers are likely to take a rest and accept the cheque rather than keep on working to get soybeans in the ground.

Indeed, Linn forecast US soybean stocks falling in 2011-12, to end at 122m bushels, the lowest estimate from all brokers polled by Reuters.

Wheat considerations

For wheat too, weather has bought significant sowing delays for US spring crops, although current USDA estimates are not expected to be up for revision ahead of formal sowings reports later in season.

Expectations for Wasde wheat estimates, (current estimate)

End 2010-11

US stocks: 845m bushels, (839m bushels)

Highest estimate: 868m bushels; lowest estimate, 831m bushels

End 2011-12

US stocks: 658m bushels, (N/A)

Highest estimate: 800m bushels; lowest estimate, 432m bushels

Total 2011 US production: 2.04bn bushels

Includes hard red winter wheat: 771m bushels

Sources: Thomson Reuters, Dow Jones

And dryness is proving a challenge for Chinese and European Union crops too.

"Globally, of particular attention will be the USDA's EU production forecast, given the stress in the current wheat crop," Australia & New Zealand Bank analysts said, while themselves reckoning it was "still probably too early for any surprises here from the USDA".


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