Will they or won't they?

US Department of Agriculture officials will on Wednesday unveil their latest monthly Wasde report, giving much-anticipated estimates of world crop supply and demand.

However, of all the figures that will be revealed, investor focus is centring on a handful, surrounding US corn and soybean supply.

Midwest farmers have made a tremendous effort to catch up on plantings of corn, after a historically slow start, but remain behind the pace, raising fears of farmers abandoning acres they had allocated to the grain, or at least switching them to other crops.

For soybeans, plantings are at their slowest in 17 years. (More on plantings will be revealed in a weekly USDA crop progress report late on Monday, June 10).

Will USDA forecasters adjust their yield or planting area estimates – or both – to account for the threat to crop potential from the historically wet spring?

"I think this is really what investors are going to be most interested in," Bill Tierney chief economist at AgResource said.

'Recognises the problems'

There are plenty of investors who believe a downgrade to corn estimates, at least, is on the cards in Wednesday's Wasde, Allendale's Rich Nelson among them.

"The USDA will be taking some steps to show that it recognises the problems the weather has caused farmers, and what this might mean for crops," Mr Nelson said.

"It generally does not make changes unless there is a serious problem," as in 2011, also a year of rain-delayed plantings, when the USDA in its June Wasde cut the corn area forecast by 1.5m acres.

This year's setbacks are sufficient in Allendale's view to warrant a cut of 2.25m acres in the forecast for corn planting, besides a drop in the yield estimate of 2.0 bushels per acre to 156.0 bushels per acre to factor in the dent to productivity hopes from a shorter growing window for late-planted crop.

All told, this will prompt a cut of nearly 600m bushels in the USDA forecast for the US corn harvest, downgrading the all-important end-2013-14 stocks number – which in indicating the availability of supplies has a big impact on pricing – to 1.68bn bushels, the Illinois-based broker believes.

'Such a wrong turn'

But not so fast. Others have a different take.

After all, while the USDA did in 2011 cut its corn acreage forecast in its June Wasde, by 1.5m acres, the downgrade proved premature.

By the end of the season, the USDA had returned all but 300,000 of those acres back to its corn area estimate.

As for yield, the USDA has been wrong-footed on that too of late, with the department in 2012 raising its estimate for corn yield to 166.0 bushels per acre, compared with the trend yield pegged at 164.0 bushels per acre, only to have to back track as drought set in, and the yield tumbled to a 17-year low.

"They put the yield up from a high figure to an unbelievably high figure," said Jerry Gidel, chief feed grains analyst at Chicago broker Rice Dairy.

"That was such a wrong turn, I can't think they will be so enthusiastic about making changes this time yet."

'Wait for more evidence'

And, after all, there is an important report coming up at the end of month - a survey of actual plantings, as well as a much-watched one on US grain stocks - which will give a better idea at least of what farmers have actually managed to get into the ground.

"I think they will wait for more evidence of what has actually gone one before they make any changes to area," Don Roose, president of Iowa-based broker US Commodities said.

"It is only a couple of weeks away. And that will give make a far better informed acreage figure."

Then there is what actually happens to factor in, including the 2011 result.

At RJ O'Brien, Richard Feltes compared trade talk of a loss of 2m-3m acres of US corn sowings, compared with the 97.3m-acre figure revealed in a planting survey released in March, with historical precedent.

"Large March to Final declines in corn area are rare - most recently 1993 and 1996 which posted 2m-3m acre declines."

'Duty calls'

AgResource's Bill Tierney has also looked at historical precedent, and found that in the last 30 years or so, the USDA has nine times cut corn yield or acreage estimates in a June Wasde – only twice, in 1995 and 2002, doing both.

Not that the rarity of this double-revision option means it is out of the question this time.

In the May Wasde report, after all, the USDA proved more proactive that many investors had expected - publishing a 158.0-bushels-per-acre yield figure which was far short of its estimate for trend yield they unveiled in February, and below market expectations too.

"People were ready for some downgrade from the initial 163.4 bushels per acre, but not to go as low as the USDA went," Mr Tierney said.

And officials "have a duty to provide their best estimates with the data available", he added, opening up the potential for some proactivity this time too.

'Still early days'

At least on soybeans, there is greater consensus that the Wasde will not make any major changes, if any at all.

Sure, Allendale believes that soybean sowings will turn our 1.75m acres above the USDA forecast, topped up by a switch by farmers to the oilseed, which is slightly later sown, from corn.

But with US farmers still having a hefty chunk of soybean plantings to go, and with insurance dates not yet passed for plantings, allowing farmers to claim, as they have for corn in most states, "it is still early days" for the USDA to be revising its soybean forecasts, Allendale's Rich Nelson said.

Mr Tierney noted that, even if the USDA's Wasde forecasting committee for corn cut its forecast for sowings, that did not mean the soybean figure would be adjusted too, potentially upwards to account for a switch in sowings.

"The soybean committee does not make forecast changes just because the corn committee does so," he said.

Mass soybean plant closures?

There is some talk about what changes the USDA will make to old-crop supplies too, with a weakness in the pace of soybean exports being counterbalanced by strength in the domestic crush, spurred by demand for soymeal, one of the main processing products both domestically and abroad.

Indeed, for soymeal, the total of completed exports and orders from foreign buyers has already exceeded the USDA's current total for shipments in 2012-13.

As for soybeans themselves, "the USDA currently has a very low number for the domestic crush," Mr Nelson said.

"For it to end up that low means the domestic crush hasl fall 23% below last year's for the rest of the season - we have to shutter almost one quarter of the plants in the US."

'Not a good correlation'

For wheat, expectations are for not too much in the way of revisions, with the USDA's hard red winter wheat estimates already including some damage to drought in the southern growing areas, such as Texas, where early harvest results have yet to reveal a conclusive trend on yield either.

"With wheat, there is not a good correlation between moisture and temperatures and what we see for yields," Mr Nelson said.

"After the next two or three weeks, we will have a better idea of what is going on."

Uncertainty to linger

It will take longer than that to resolve the uncertainty in corn and soybean forecasts.

And not just because the weather later in the summer will be crucial to determining yields.

US Commodities' Don Roose, while flagging the importance of the US crop area report due at the end of the month, also acknowledged its limitations.

"The cut-off date for data is June 15. In a season like this, that is quite early," especially given that, for many states, the prevent plant date for soybeans, when farmers can claim insurance on lost acres, is around then, or later.

"We are going to have a lot of uncertainty around for a while yet," and perhaps until August.

"The August Wasde looks like being particularly serious report for acres and yield."


 

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