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US to unveil many crop numbers. But only one really matters

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Of all the data that will emerge from US farm officials later on Thursday, there is only one that really counts.

Sure, the US Department of Agriculture will release data on prospects for US crop plantings, with sowings already in progress in the South, and with farmers in the important Midwest growing areas gearing up to start in the next couple of weeks.

But it is not those which are likely to be quite so market sensitive, apart from cotton.

'Still plenty of time'

"There is still plenty of time for farmers to switch crops, depending on what happens to weather or prices," Don Roose, president of US Commodities, said.

A poor start to sowings could prompt farmers to, say, turn from corn to soybeans, which have a slightly later planting window.

Higher prices can lure farmers too, increasing prospects for returns. And, indeed, there are ideas that the 20% rebound or so in New York cotton futures this year has prompted farmers to reassess ideas of a sharp crop in seedings.

Indeed, Mr Roose flagged talk of farmers in the South "planting a bit more cotton" than originally expected, although area is nonetheless expected to show a drop of some 2m acres year on year.

'The big deal'

The day's most important number is hidden within the quarterly grain stocks data which the USDA will also release, giving estimates for inventories of the likes of corn, soybeans and wheat as of March 1.

Forecasts for USDA sowings data and (actual 2012 plantings)

Corn: 97.252m acres, (97.155m acres)

Soybeans: 78.394m acres, (77.198m acres)

All wheat: 56.442m acres, (77.198m acres)

Includes winter wheat: 41.816m acres, (41.324m acres)

and spring wheat: 12.259m acres, (12.289m acres)

Sources: ThomsonReuters, USDA

"We know the soybean crush, we know exports," Mr Roose said.

"It is feed usage which is going to be the big deal," which represents a huge source of demand, and for which the quarterly stocks report offers the best assessment.

And it is corn feed usage which is the most important number on Thursday, given that US stocks of the grain are so tight following last year's poor harvest, but there are ideas of some substitution with other grains, notably wheat.

"We are going to see if feed usage of corn has really slowed enough to avoid us running into a tight situation," Mr Roose told Agrimoney.com.

Strong correlation

In fact, the assessment of the importance of the corn stocks number is more than a matter of opinion.

Forecasts for USDA corn stocks March 1 and (year ago figure)

Consensus estimate: 5.013bn bushels, (6.023bn bushels)

Highest estimate: 5.248bn bushels

Lowest estimate: 4.885bn bushels

Sources: ThomsonReuters, USDA

While data showing larger-than-expected stocks should undermine futures, while smaller inventories mean buyers need to raise their game to secure supplies, for soybeans and wheat, the relationship between data and prices was "very weak", he said.

But for corn, "the July contract seems to consistently respond to the different between expectations for the report, and what actually comes out", Mr Tierney said.

And that direction, indeed, is what soybean and wheat futures are likely to follow too.

Price dynamics

The price responses can be large – indeed, that is one reason for the heightened interest in the reports, with the median price change 2.6%, Mr Tierney's research has found.

Forecasts for USDA soybean stocks March 1 and (year ago figure)

Consensus estimate: 935m bushels, (1.374bn bushels)

Highest estimate: 984m bushels

Lowest estimate: 905m bushels

Sources: ThomsonReuters, USDA

Typically, there a movement of about 1.5% in prices for every 1% deviation in the data from analyst expectations.

And about 75-80% of the movement tend to come on the day of the data itself.

The big question

But that leaves one key question – which way will prices move on Thursday?

Forecasts for USDA wheat stocks March 1 and (year ago figure)

Consensus estimate: 1.177bn bushels, (1.199bn bushels)

Highest estimate: 1.238bn bushels

Lowest estimate: 1.055bn bushels

Sources: ThomsonReuters, USDA

"The data does not show a clear bias to analysts over- or under-estimating the stocks figure," he said.

That said, on a more recent timescale than 29 years, a pattern does seem evident.

"March 1 US corn stocks have fallen below the average trade guess in four of the last five years," Richard Feltes at Chicago-based broker RJ O'Brien said.

Furthermore, the "last four quarterly corn stocks reports, in January, September, June and last March, all posted corn stocks below trade expectations" too.

'Predisposed to bullish updates'

The trouble for corn bulls is that many investors have noted that relationship too.

"We believe the trade is predisposed to bullish updates on both corn and soybean stocks in the report," Mr Feltes said.

"We'll need March 1 US corn stocks of sub-4.95bn bushels, and soybean stocks below 900m bushels, to maintain the current uptrend" in prices, especially with the prospect of large crops this year.

Although it is the corn stocks figure, of course, which will really make the difference.

By Mike Verdin

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