Views on commodities and energy
All Eyes on USDA’s Tuesday Blockbuster
The biggest crop report of the summer will be released on Tuesday morning at 7:30 a.m. (1230 GMT). Undoubtedly it will be the main driver of Chicago Board of Trade grain and soybean prices that day and for the remainder of the week.
USDA’s August crop report is always a biggie. It’s the government’s first U.S. corn and soybean crop forecasts of the year based on actual field surveys, rather than historical average yield estimates. But this year offers some special twists.
Crop development for both is running one to three weeks behind normal in the heart of the Corn Belt. (Iowa and Illinois alone usually produce a third of both corn and soybeans.) Planting was delayed across the Midwest this year due to a wet, cold spring, followed in June by the worst flooding the region has seen in 15 years. So analysts are wondering if the government’s yield estimates will be a true reflection of the crop size.
In a normal year, corn yield projections are more accurate than soybeans as corn goes through pollination during July. But as of last week almost a third of the U.S. corn crop had not yet pollinated. Still, crop scouts have an easier time predicting corn yields compared to soybeans, a crop which usually sees its key growth stage — flowering and pod-setting — in August, not July. So yield estimates for beans are always tough this early in the summer.
Then you have the issues tied to the great Midwest flood.
Since the deluge and weeks of levee breaks in June, grain analysts, traders and crop specialists have been second-guessing the USDA on how many acres of corn and soybeans were planted and how many were lost. The flooding occurred so late in the season that replanting corn or even beans looked like a losing proposition. Usually, corn planted after May 15 in the central Midwest loses about a bushel a day of yield due to fewer growing days.
USDA promised that during July it would resurvey some 9,000 farmers in the heart of the Corn Belt that were hardest hit by the Midwest floods. In June, corn prices soared to a record above $8 a bushel on talk that as much as 5 million acres of corn were lost or would need replanting. Traders did back-of-the-envelope calculations using average yields of, say, 145 bu an acre and, presto, came up with a potential loss of 700 million bushels. That would have wiped out the projected end-stocks in September, 2009, already seen at 13-year lows before the flood.
“We are so delayed on development that I don’t know if anybody is really going to be that confident on what USDA gives on yield. There’s just not enough to measure,” said Randy Mittelstaedt, analyst with Chicago-trade house R.J. O’Brien.
“What I’m hoping is we get a better soybean and corn acreage reflection. At least that will give us a starting point as we move forward the next three or four weeks and determine crop size and have a better handle on yield.”
Another detail traders will be looking at more closely will be the USDA’s assessment of this season’s carry-over soybean supplies.
Last month, USDA revealed a stunner buried away in its monthly domestic supply-demand report. USDA reported a ”-35 million bushel” supply of soybeans in its residual category for the 2007/08 crop year ending August 31. The first supply deficit for USDA’s catch-all category that most analysts could recall. USDA said the negative residual was based on demand through end-May and on USDA’s June 1 soybean stocks report.
While it pointed to tighter supplies this season than even bulls expected, it could be an indication that the 2007 crop was understated — an adjustment that will not be made until September 30 when USDA issues its quarterly stocks report.
Bottom line: stay close to news reports on Tuesday. No change in acreage, or an increase or decrease – all will have market implications for price.
Two well respected analysts, Rich Feltes of MF Global Research and Dan Basse of AgResource, will be commenting on the report from the CBOT floor after the USDA data on Tuesday and ahead of the 9:30 a.m. (1430 GMT) futures market opening.
Rest assured that after the opening, while the debate over USDA’s estimates will continue, the market will also focus closely on weather as pollination and pod-setting continue.