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US grain stocks report may bare teeth after all

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The grain stocks reports released by the US Department of Agriculture every three months can prove game changers, in terms of price direction.

Take a look at long-term grain price graphs, and it is not difficult to find the fingerprints of surprises in the quarterly inventory reports, in sharp moves in futures around, say, the end of June, or March.

But will Wednesday's report - covering stocks as of September 1, end end of the 2014-15 marketing year for corn and soybeans - prove somewhat underwhelming, in terms of provoking price volatility, and have something of a turn-of-the-century feel?

Jerry Gidel, chief feed grains analyst at Chicago broker Rice Dairy, said that "September's grain stocks [reports] weren't a big event until the late 2000s," when the likes of advances in harvesting techniques seemingly led to mix-ups between old and new crop in inventories and muddied data.

The 2013 edition, for instance, sent corn prices falling to a three-year low, while the 2012 report provoked the opposite response, with corn futures surging the maximum daily limit in Chicago.

'Way down in investors' priorities'

Still, many investors do not expect fireworks this time.

Forecasts for USDA estimate of US corn stocks, September 1

Average estimate: 1.739bn bushelsRange of estimates: 1.647bn-1.850bn bushelsCurrent USDA estimate: 1.732bn bushelsSeptember 1, 2014 figure: 1.232bn bushelsSources: USDA, Reuters

"But this one should be quiet."

At AgResource, chief economist Bill Tierney, said that Wednesday's report "will probably not have an impact for more than a couple of hours.

"It is way down in investors' priorities," behind issues such as North America crop yields, with investors' juggling poor reports from parts of the eastern Corn Belt with strong findings further west.

The poor start to 2015-16 for US corn, soybean and wheat export sales is also of more importance this time, as is the extent, and pace, of South American sowings ahead of early-2016 harvests.

Spread of estimates

The issue is not that there is huge certainty over what the stocks figures will bring.

For corn, there is an idea that the inventory figure may be swollen a bit from the USDA's current estimate of 1.732bn bushels by US exports falling short of expectations for 2014-15.

"It may be that exports did not hit the USDA forecast by about 20m bushels," Mr Roose said, a factor indicated by actual cargo data, at 1.855bn bushels, coming in short of the 1.875bn bushels officially expected.

Still, Mr Gidel flagged the potential for previous lower-than-expected quarterly stocks reports to indicate the same this time, with a relatively slow pace of new crop harvesting also a support to ideas of users being forced to rely for longer old crop supplies, so sapping inventories.

The stocks number could come in as low as 1.652bn bushels, he said, a figure towards the bottom of the range of market expectations, which stretched up to 1.85bn bushels.

Harvest overstated?

For soybeans, the spread of market expectations indicates even greater uncertainty – despite the consensus figure, at 205m bushels, being only 5m bushels below the USDA's current estimate.

Forecasts for USDA estimate of US soybean stocks, September 1

Average estimate: 205m bushelsRange of estimates: 165m-250m bushelsCurrent USDA estimate: 210m bushelsSeptember 1, 2014 figure: 92m bushelsSources: USDA, Reuters

There is a broad idea that the US harvest estimate for 2014 was overstated, a factor many investors see as signalled in the positive 81m-bushel figure the USDA has in the oilseed for "residual", a somewhat amorphous category which often signals adjustments ahead to harvest estimates.

"They have changed previous year's production 12 out of the last 15 years," Allendale's Rich Nelson said.

Mr Gidel, also noting the past two quarterly stocks reports had come out with figures below market expectations, said that the "the USDA may slice 84m bushels from the 2014 crop", an adjustments which could be achieved, for instance, by cutting area by 400,000 acres and yield by 0.8 bushels per acre.

He forecast a stocks figure of 185m bushels, a result which, if confirmed, would mark only the second time in eight years of the USDA unveiling a September 1 soybean inventory estimate below market expectations.

'Overshadowed'

It is actually an outcome being taken increasingly seriously, with Richard Feltes attributing firmness on Tuesday in soybean futures to the "approach of the stocks report, that may trim US soy stock more than expected if the 2014 soybean crop is reduced".

Still, the changes in stocks numbers the USDA comes out with look likely to be dwarfed by potential revisions in estimates for the current harvests, which may be made when the USDA next week unveils its monthly Wasde supply and demand report.

"The stocks numbers are likely to be overshadowed by ideas of new crop supplies," Mr Nelson said, taking a somewhat upbeat view of yield potential for the current harvest.

"We are looking at big corn and soybean yields," he told Agrimoney.com, seeing only two areas of the Midwest, central Indiana and central Illinois, as producing disappointing results.

"In about 90% of the Midwest, yields are coming in as expected, or above expectations."

Where September stocks reports tend to have most impact on prices is in times of tight supplies, when every bushel counts in terms of setting values.

'A little disturbing'

Not that this makes the stocks report formality – even if corn and soybean numbers come in exactly at consensus readings.

Forecasts for USDA estimate of US wheat stocks, September 1

Average estimate: 2.149bn bushels

Range of estimates: 1.987bn-2.285bn bushelsSeptember 1, 2014 figure: 1.907bn bushelsSources: USDA, Reuters

AgResource's Bill Tierney, a former lead grains economist for the USDA, is forecasting a rise of 18% year on year in US wheat stocks as of September 1, to some 2.25bn bushels.

This estimate, which is actually below that of some other commentators, would imply the "lowest use of US wheat in the June, July, August period, the first month of the wheat marketing year, in more than 35 years," he told Agrimoney.com.

"Taking in exports, milling use, feed and residual, it would be the lowest in more than 35 years.

"That is a little disturbing."

Seasonal high

OK, the US export performance could pick-up from a poor start, once the former Soviet Union's typically early-season shipment boom fades.

But for US consumption of wheat, that is not so likely.

Mr Tierney said: "Wheat is used for feed most over the summer months," before the autumn harvest bump up supplies of the likes of corn.

"The amount of feed used over the summer," which can be calculated from subtracting known uses such as exports and food use from the boost to supplies from the recent harvest, "gives an indication of what might happen for the rest of the marketing year."

Even if corn and soybean investors find the stocks report of short-term interest, for the wheat market it could ask questions that last well into 2016.

By Agrimoney.com

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