Given the massive deviations from expectations seen in the last several quarterly Grain Stocks reports, the risk in next week’s reports could be the greatest for corn.
The ongoing uncertainty of last year’s crop size, the unknown handling of grain stocks surveying procedures in recent quarters, the huge DDG availability on corn feeding levels and the uncertainty over the impact on U.S. corn exports of the Australian flooding all will play a role in the surprise potential for corn.
As USDA has lowered the corn crop estimate in each month since the initial August estimate of 13.365 billion bushels, the market is heavily expecting another revision in the final number.
However, to throw out the first potential surprise for corn, in the six previous years since 1970 when USDA lowered the U.S. corn crop estimate in September, October and November, only two saw a further reduction in the January report, while two saw modest increases and two were essentially unchanged.
This clearly doesn’t show the slam dunk most are likely expecting in this report. We can also see that, overall, in recent years, there has been a bias for a higher revision in the January report as that has been seen in four of the last six years regardless of previous revisions.
As a refresher, last year’s 230 million bushel increase in January was one of the largest annual report revisions on record. Interestingly, the January corn crop estimate hasn’t held too many real surprises for the market in the past.
As seen, last year’s report, which came in a massive 332 million bushels above the average trade estimate, was one of the few notable surprises over the last 15 years. Despite the far-from-perfect expectation for a decline in the U.S. corn crop, the trade is looking for a modest reduction to 12.49 billion bushels from the November estimate of 12.54 billion, with the average yield moving down to 153.9 bushels/acre from 154.7 estimated in November.
We would also note USDA typically does reflect acreage revisions in this “final” report, as well, with the last three years seeing 300k to 400k acre increases in harvested area. However, more notable acreage revisions have been seen in the past, as well, with a 500k acre reduction seen in the January 2007 report, a 1.1 million acre increase in 2006, a 700k acre reduction in 2004 and a 1.2 million acre reduction in 2003.
While much of the market’s focus may be on the corn situation this month, soybeans have plenty of uncertainty and room for surprise, as well. With U.S. ending stocks estimates having been revised down to historically low levels in recent months, obviously a heightened sense of concern is also being seen in the soybean market. Starting with the U.S. soybean crop estimates, revisions in recent months threw a bit of a curve ball at the market relative to expectations as higher estimates in August and September led to ideas of higher yields in October, as well.
However, USDA reflected lower crop estimates in the October and November reports, leaving the market somewhat uncertain heading into next week’s report. In the last two years, USDA has reflected solid crop increases in the January report, while that has also been the case in 3 of the last 5 years.
Interestingly, USDA has not reflected a solidly lower soybean crop estimate in January over the last seven years. There have been a few notable surprises in the January estimate of the soybean crop recently, with two of the last four years seeing nearly 50 million bushel deviations from the average trade estimate.
In a year such as this, with ending stocks already being estimated at historically low levels, any notable deviation from expecta- tions can have a significant impact on the market.
With the modest decline in crop estimates in recent months, the average trade guess is looking for another slight decline in the U.S. soybean crop to 3.378 bb, down from the previous 3.378 bb, with the yield of 44.0 bushels per acre from 43.9 previously.
In terms of ending stocks, the trade is currently estimating 2010/11 U.S. wheat ending stocks at 845 million bushels versus 976 mb last year. The biggest question regarding the overall balance sheet this month will be how the USDA handles the Australian situation relative to quality wheat exports.
While U.S. export sales have been decent and maintained modest levels above those needed to reach the USDA’s current export projection of 1.25 bb, we don’t yet see the need for a major increase in the export forecast. We’re current at 1.27 bb for 2010/11 exports.
As far as winter wheat acreage goes, the market is expecting a substantial increase in planted area to be reported in Wednesday’s report. Average guess is for 41.22 mb versus the 2010 estimate of 37.33 mb. With wheat prices soaring during the fall planting season, despite the still very comfortable U.S. balance sheet, expectations are that U.S. wheat farmers took to cue and sharply increased area from last year.
Brian Hoops is president and senior market analyst of Midwest Market Solutions Inc. Midwest Market Solutions is a full-service commodity brokerage and marketing advisory service, clearing through R.J. O’Brien.
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