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USDA Crop Reports Preview
Elaine Kub 12/10 3:47 PM
OMAHA (DTN) -- Government economists won't have had access to much fresh production information about soy, corn or wheat since November's USDA reports, so large adjustments to production numbers aren't widely expected until January's crop production report. However, the fast pace of exports could make USDA feel obligated to bullishly tweak ending stocks figures lower in December's supply and demand report to be released Tuesday morning.
Therefore, it would be unwise to rule out surprises, as volatile market conditions have set up the futures trade for quick movements.
As of November 9, USDA saw U.S. ending stocks at 1,899 million bushels for corn, 210 mb for soybeans and 312 mb for wheat. World ending stocks were pegged at 110 million metric tons for corn, 49 mmt for soybeans and 109.9 mmt for wheat.
The underlying usage factors that could be changed to alter those ending stocks estimates include U.S. ethanol use for corn (pegged at 3,200 million bushels for two months in a row), biodiesel use for soybeans (4.2 billion pounds of soybean oil) and exports (2,350 mb for corn; 975 mb for soybeans, and 1,150 mb for wheat). Given that current accumulated export sales have already reached 90 percent of the expected total for wheat and over 60 percent for the row crops, at some point the government is likely to change its expectations for the 2007-2008 marketing year.
Meanwhile, Tuesday's crop production report will provide a summary only for the cotton crop. Depending how bearish the outlook for cotton remains, this crop could once again give up acres to corn and soybeans in spring 2008. Prices in the cotton market have been trending lower throughout the past month, but that has been a reaction to bearish fundamentals long known by traders. The overall trading volume was light last week, suggesting noncommercial (speculative) traders were not especially eager to take positions based on their predictions for Tuesday's report. In November, USDA made a bearish adjustment to its cotton production forecast, pegging it at 18.9 million bales.
The numbers from Tuesday's World Agriculture Outlook Board will come out more than a week after the Australian Bureau of Agricultural and Resource Economics (ABARE) announced its projection for 12.7 mmt of wheat to be harvested in Australia; USDA has a long-standing prediction of 13 mmt of Australian wheat production. Additionally, Stats Canada said Thursday that Canada produced 14.7 mmt of non-durum wheat, and the country's canola production figure was also below the five-year average. IBGE's (the Brazilian statistics agency) estimate for Brazilian soy production as of Monday the 10th was 58.35 mmt. Meanwhile, Argentina has decided to keep its export registry closed until Christmas, but this is not earth-shattering for world grain trade in the long term.
As we wait for any market reaction to Tuesday morning's numbers, it's important to bear in mind how vulnerable markets have become to volatile movement. Corn, soybeans and wheat all saw bullish interest from investors last week, developing short-term higher trends consistent with the expectation for decreased stocks figures. The soybean market has been buoyed by a huge net-long futures position built up by noncommercial (speculative) traders. That support may remain as long as -- but only as long as -- there is fundamental uncertainty about South American production.
Also, watch for an interest rate decision from the Federal Open Market Committee (FOMC) Tuesday afternoon. Anticipation of that could spark some jittery trade in outside markets, and soybean and grain markets are vulnerable to spillover macroeconomic uncertainty.
Elaine Kub can be reached at email@example.com.
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