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Will the Wasde be as tepid as investors expect?

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Investors have little expectation of a surprise in Friday's Wasde crop briefing. Could they end up wrong-footed?

Rich Nelson, chief strategist at Allendale, speaks for the consensus when he says this edition of the US Department of Agriculture's monthly crop supply and demand reports should prove "a minor" affair.

It will "make a number of adjustments to demand" in 2012-13, with estimates for domestic harvests, at least, already finalised.

The expectations are that these will prompt a small rise in forecasts for the domestic corn and wheat inventories.

"US corn and wheat have had some trouble with exports," Mr Nelson said, corn especially, with disappointing hard red winter wheat trade dragging on wheat shipments.

But these have already been priced in, with the declines in price of wheat, on course for a seventh successive week of decline, and corn.

'Quite a pickle'

Still, the January edition of the Wasde managed a few surprises, including an unexpectedly large cut to the estimate for domestic wheat inventories at the close of 2012-13, and a downgrade in the corn stocks number too, when investors had forecast an upgrade.

Estimates for Wasde corn data, 2012-13 and (change on current)

US ending stocks: 643m bushels, (+9m bushels).

Biggest estimate: 695m bushels. Smallest estimate: 560m bushels

World ending stocks: 117.79m tonnes, (-247,000 tonnes).

Biggest estimate: 120.0m tonnes. Smallest estimate: 116m tonnes

Argentina harvest: 25.45m tonnes, (-1.55m tonnes)

Brazil harvest: 72.34m tonnes, (-157,000 tonnes)

Sources: Reuters, USDA

For Jerry Gidel, chief feed grains analyst at Chicago-based broker Rice Dairy, "it is all about soybeans".

"The latest US export numbers have put the USDA in quite a pickle," in how to factor them into a balance sheet which was already looking exceptionally tight, with stocks seen ending the year at one of their lowest levels in history.

"The USDA needs to raise its export number, but where are the extra soybeans going to come from?"

Export surge

To get a better gauge of the "pickle" on the 2012-13 balance, consider the USDA's soybean export bombshells this week.

Estimates for Wasde soy data, 2012-13 and (change on current)

US ending stocks: 120m bushels, (-5m bushels).

Biggest estimate: 130m bushels. Smallest estimate: 100m bushels

World ending stocks: 59.45m tonnes, (-672,000 tonnes).

Biggest estimate: 60.6m tonnes. Smallest estimate: 58.0m tonnes

Argentina harvest: 50.87m tonnes, (-2.129m tonnes)

Brazil harvest: 83.15m tonnes, (-355,000 tonnes)

Sources: Reuters, USDA

And this excludes a sale of 330,000 tonnes revealed on Tuesday, which will make it into next week's weekly soybean data.

"Total sales now stand at 96% of the total USDA projection for the 2012-13 crop year," of 1.345bn bushels, Darrell Holaday at Country Futures said.

"That is unbelievable given the fact that we are just six months through the crop year and given the fact that there are only 3.6m tonnes (132m bushels) that have been sold and not shipped.

This makes potential cancellations of import orders, a big fear in December as China appeared to be walking away from purchases, "much less of a factor".

'Reduced wiggle room'

One way for the USDA to resolve the issue is simply to lower its estimate for inventories at the end of the marketing year, although it looks unlikely to move far in that direction.

Estimates for Wasde wheat data, 2012-13 and (change on current)

US ending stocks: 704m bushels, (+13m bushels).

Biggest estimate: 754m bushels. Smallest estimate: 670m bushels

World ending stocks: 176.55m tonnes, (-182,000 tonnes).

Biggest estimate: 178.0m tonnes. Smallest estimate: 174.5m tonnes

Sources: Reuters, USDA

USDA officials have consistently stuck by ideas of pipeline minimums for crops stocks, and the idea of there being a floor level for supplies well above zero, counting in volumes left on farm, in elevators, in buyers' stores, port silos and merchants' barges.

Another way is for the USDA to lift its expectations for US imports – although given that the the 544,000 tonnes (20m bushels) already factored in is already well into unchartered territory, officials might baulk at that too.

Mr Gidel said: "They may have to cut the amount put down to 'residual'," a rather amorphous category, "although they are not going to like it so early in the season, reducing their wiggle room."

South America downgrades

The market deliberations over relatively small US volumes of the oilseed appear far more significant than those for potentially far bigger revisions to South American soybean harvests, seen in line for downgrades.

But then investors have significant transparency on these crops from a range of other commentators.

Significantly, Conab, Brazil's crop bureau, on Thursday cut its estimate for the Brazilian soybean harvest from 83.4m tonnes, in line with the USDA's current forecast, to 82.1m tonnes.

Wheat surprise?

Indeed, even the USDA estimates US corn and wheat balance sheets could prove bigger sources surprises, if Rabobank is right on the potential for exports to pick up from their early weakness in 2012-13.

Rabobank pegged its forecast for US wheat exports at 1.075bn bushels, 25m bushels above the USDA estimate, saying it saw "limited evidence of slowing importer demand".

Thursday's weekly US export sales data came in at 828,000 tonnes, the third best result in the past two years.

"With US wheat now the world's cheapest, we expect that the upward trend in exports will continue," the bank said.


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