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Will the Wasde make big changes to soy, corn estimates?

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Just as a year ago, US dryness is top of the agenda in agricultural commodity markets.

The dearth of rain in the Midwest - of which 29% was in drought at the end of August, up from 2.1% at the close of July – has again spurred investors to cut forecasts for US corn and soybean yields.

And they are looking to US Department of Agriculture to follow suit in the September edition of the Wasde, its benchmark crop report, which gives estimates for supply and demand worldwide - and has a habit of move futures prices.

Same as last year?

The question is, will it? And by how much - uncertainty evident in the reduced volatility in prices and trading volumes ahead of the report, as investors steer clear.

A year ago, the September Wasde surprised investors with a corn yield downgrade of just 0.6 bushels per acre, far less than they had expected, but with a cut for soybeans of 0.8 bushels per acre, a downgrade much bigger than forecast.

This time there is a sneaking suspicion among investors that the cut to soybeans may not meet market expectations of a 1.4 bushels-per-acre downgrade, to 41.2 bushels per acre.

Little by little

"I can imagine they won't cut the figure so far this time around," Jerry Gidel, chief feed grains analyst at Chicago broker Rice Dairy, said.

Market expectations for Wasde corn estimates, 2013-14, (current figure)

US yield

: 153.7 bushels per acre, (154.4 bushels per acre)

Range of estimates:150.2-157.2 bushels per acre

US stocks

, end of season: 1.732bn bushels, (1.837bn bushels)

Range of estimates:1.147bn-2.296bn bushels

World stocks

, end of season: 146.927m tonnes, (150.17m tonnes)

Range of estimates:125.9m-152.0m tonnes

Sources: USDA, Reuters poll

While Paul Georgy, president of Allendale, did foresee the USDA coming out with a figure of "around" 41 bushels per acre, that is much higher than the yield that the broker actually believes the US will end up with.

An Allendale survey of farmers, which the broker sees typically giving a figure within 1 bushel per acre of the actual result, revealed a US average of 39.0 bushels per acre.

"Historically, the USDA will not make that deep of a cut on the September report."

History lesson

Indeed, that is one factor which is making investors nervous of a large downgrade on Thursday.

The USDA has, in a September Wasde, cut its yield forecast more than 1.4 bushels per acre "only three times in the last 32 years", Richard Feltes at RJ O'Brien said.

In fact, although the trade is "resolutely confident that 2013 Midwest soybean yields will fall short of expectations, USDA soybean yield estimates have advanced between August and September in three of the last four years", he said.

"What could the downside be to November soybean futures if Thursday's US soybean production update exceeds trade expectations?"

'May skew the yield high'

An extra concern is in the USDA methodology for this report, which will rely largely on data collected in August and relying on a five-year average pod count, which many analysts believe may result in an artificially high yield number higher.

Market expectations for Wasde soy estimates, 2013-14, (current figure)

US

yield

: 41.17 bushels per acre, (42.6 bushels per acre)

Range of estimates:39.0-42.6 bushels per acre

US stocks

, end of season: 165m bushels, (220m bushels)

Range of estimates:114m-230m bushels

World stocks

, end of season: 71.17m tonnes, (72.27m tonnes)

Range of estimates: 67.1m-75.0m tonnes

Sources: USDA, Reuters poll

The trade was "hesitant", fearing a "bearish" Wasde, she said.

Furthermore, there is a feeling that the USDA may prove reluctant to make a hefty downgrade this year after being caught out a year ago, when its September yield forecast of 35.3 bushels per acre proved far too low.

Thanks to a boost to the crop from late rains, the figure ended up at 39.6 bushels per acre.

Corn factors

For corn, the Wasde yield estimate is seen as less sensitive.

The Midwest dry spell came after the grain's critical, weather-sensitive pollination phase, meaning that while crops may not fulfil their potential, they will prove a big improvement on last year.

Indeed, there is a strong feeling - which has made corn futures the worst performer in the S&P GSCI commodity index in 2013 - that whatever the yield result, the US will see a huge rebuild in stocks of the grain in 2013-14, and mean little cause for buyers to pay up for supplies.

Besides, history suggests that investors may be wise not to make a bullish call on corn on Thursday, with corn output estimates in September Wasde reports "showing a strong tendency to exceed trade expectations," Mr Feltes said.

In the past 24 years, the Wasde estimate for corn production has beaten trade estimates 17 times.

'Export pace has been slow'

Still, yield is not the whole story, with demand also likely to be taken into account.

Market forecasts for Wasde wheat estimates, 2013-14, (current figure)

US stocks

, end of season: 551m bushels, (551m bushels)

Range of estimates: 579m-769m bushels

World stocks

, end of season: 172.76m tonnes, (172.99m tonnes)

Range of estimates:169.35m-175.72m tonnes

Sources: USDA, Reuters poll

The USDA is currently forecasting 1.23bn bushels in exports for the newly-started season, a 71% rebound from the drought-affected levels of 2012-13.

Conversely, domestic demand may prove strong, with Rice Dairy's Jerry Gidel flagging market sentiment that "chicken and pork guys are keen on expanding" despite the revival in grain and soybean prices.

More data ahead

And even when the Wasde is released, that will answer only some of investors' questions, meaning that many feel its impact on markets may prove relatively limited.

"People will be waiting for September 17 too," when the Farm Service Agency reveals updated figures on the amount of land that farmers proved unable to sow this year, because of the wet spring.

Many analysts are factoring in actual sowings figures below those the USDA is currently using.

Then there is a US grain stocks report on September 30, which will allow officials to gain a better handle on demand.

Indeed, for wheat, Macquarie believes the report could prove a game changer, in highlighting the drain on US supplies from resilient demand from importers, and from domestic feed users too.

'Historically extreme'

Furthermore, there is the link between corn and soybean prices to factor in.

Even if Thursday's report does prove bullish in its estimates, prices of the oilseed may not rise too far thanks to the depressing effect of weak corn values, Bill Tierney, chief economist at AgResource said.

"The problem is the expectation of sustained higher prices of soybeans, when soybean prices are strongly influenced by corn prices," Mr Tierney told Agrimoney.com.

The ratio between prices of November soybean futures and December corn futures in Chicago is already "historically extreme", close to 3:1, and a level that is "not sustainable".

"If we get revisions to soybeans on Thursday that seem to be bullish, prices might have trouble reacting without something happening in corn too."

By Mike Verdin

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