January 10, 2020 / 11:37 AM / 3 months ago

Column: Ag traders brace for avalanche of USDA data on Friday

FORT COLLINS, Colo. (Reuters) - There will be no slow build into the New Year for agriculture traders as Friday features the biggest data dump of the entire year from the U.S. Department of Agriculture, an event that has been known to spark large moves in futures markets.

Soybean crops are seen ready for harvest as Iowa farmers struggle with the impact of weather and ongoing tariffs resulting from the trade war between the United States and China that continue to effect their agricultural businesses in Ottumwa, Iowa U.S. October 5, 2019. REUTERS/Kia Johnson

Among the data will be the long-awaited final 2019 production numbers for U.S. corn and soybeans after one of the most difficult growing seasons ever. Those figures, along with a slew of others, will be published by USDA on Friday at noon EST (1700 GMT).

Last year’s unusual U.S. growing season, plagued early on by excessive rains, frequently tripped up analysts ahead of USDA’s reports. One-sided market estimates were usually the culprit, and they seemed to have returned for Friday’s reports in both U.S. production and year-end supply.

Of the 27 analysts polled for 2019 U.S. corn and soybean production, only one sees corn production higher than the November estimate. Two analysts predict a larger soybean crop.

Both corn area and yield are seen lower by a similar magnitude. Harvested area is pegged to be down 465,000 acres from November, which would be the largest decline into January since the 2003 crop.

The assumption for reduced corn area is likely linked to the fact that corn harvest pace was among the slowest on record after the crop was planted extremely late, and then many areas were delayed at harvest by wet conditions. Much more corn than usual still stood in fields as of mid-December, especially in North Dakota.

But a late harvest has not always produced crop declines. The 2009 corn harvest was the slowest on record, but final production ended up higher than what had been stated in November, the result of both yield and area increases.

For the 2019 harvest, U.S. soybean yield has either been unchanged or lower in every month since USDA set the trend yield at 49.5 bushels per acre. That has not happened since the 2008 harvest, though yield finally ticked higher in January 2009.

There were three occasions in the last 25 years when soybean yield was unchanged or lower in every month including January (1999, 2003, 2007). Interestingly, yield eventually ticked up in all three instances when USDA evaluated soybean stocks later in the year.

U.S. GRAIN STOCKS

Market analysts are predicting a substantial drop in 2019-20 U.S. corn ending stocks, to 1.757 billion bushels from the December estimate of 1.91 billion, and that would be the slimmest carryout in four years if realized.

This is largely driven by the expected decline in U.S. corn output, but stocks are seen falling more than production by 5 million bushels. That is a very small difference, but it goes against the general trend of a pullback in demand when supply tightens. In addition, it leaves no room for the event of corn production being larger than in November.

Of the 22 analysts polled for U.S. ending stocks, only one saw corn stocks higher than in December and only one analyst – a different one – saw soybean stocks higher. The expectation for soybean stocks is similar to that of corn, as soy carryout is seen falling by 13 million more bushels than the crop.

USDA’s statistics branch will publish Dec. 1 U.S. grain stocks in addition to the ending stock projections offered by USDA’s World Board. That will reflect supply halfway through the 2019-20 marketing year for U.S. wheat, and a quarter of the way through that year for corn and soybeans.

Trade estimates suggest that all three crops were less plentiful on Dec. 1 than in the previous year. Corn stocks are seen down nearly 4% on the year despite a more than 6% decline in output as use is sharply down from last year’s high levels. The average guess of 11.511 billion bushels would represent the second straight year of supply decline on Dec. 1.

The drastically smaller 2019 soybean harvest makes it no surprise that analysts are expecting a 15% cut in Dec. 1 soy stocks from the year-ago record. The average estimate of 3.186 billion bushels is within striking distance of the 3.161 billion-bushel figure from Dec. 1, 2017. That was record-high at the time, but it also pre-dated the U.S.-China trade war and China’s African swine fever outbreak, both of which punished U.S. soybean exports.

Analysts had been on a six-year streak of overestimating Dec. 1 soybean stocks until it was snapped last year. However, their seven-year stretch of underestimating Dec. 1 wheat stocks is still alive.

The market is coming off a very bullish result from Sept. 1 corn and soybean stocks, which were strongly overestimated. That was the trade’s worst miss on Sept. 1 stocks for both crops in either direction in at least 15 years.

U.S. WHEAT ACRES

Analysts predict that U.S. farmers planted 30.664 million acres of winter wheat for harvest in 2020, which would be the smallest area since 1909. Last year’s area of 31.16 million acres was the smallest in 110 years.

Recent trends with this report suggest that this number could be even lower. In the last 20 years, the average trade guess was ultimately too high 17 times.

Wheat futures already likely reflect the expectation for a smaller U.S. area. Most-active Chicago futures topped out at $5.67-1/2 per bushel on the first trading day of the year, and that was the highest mark since August 2018.

That price also ranked in the top 2% of all trading days within the last five years. Professional trading funds hold a net long in Chicago wheat, and the contract finished at $5.62-1/4 per bushel on Thursday.

Plantings for hard red winter wheat, primarily sown in the Southern U.S. Plains, are seen at a record-low 22.1 million acres, slightly below last year’s area, which was the smallest in data back to 1986. Although funds now hold a relatively neutral view toward Kansas City wheat futures, K.C. wheat continues to trade at a historically large discount to Chicago wheat. That spread was near 72 cents on Thursday.

The opinions expressed here are those of the author, a market analyst for Reuters. 

Editing by Matthew Lewis

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