(Agrimoney) – Now we have reached autumn, it’s worth remembering that September has a bit of a reputation of being overshadowed by October.
At least, in terms of US Department of Agriculture Wasde crop briefings, highpoints of the agricultural investment calendar.
Don Roose, president at Iowa-based broker US Commodities, said: “Typically, the October report is bigger,” being more likely, for instance, to include changes to area figures for the US corn and soybean balance sheets, which are always Wasde talking points.
October advantage
“The USDA have never changed the corn acreage number in the September Wasde in the past 20 years, and only once changed the soybean number in this period,” said Rich Nelson, chief strategist at Chicago-based Allendale.
Moreover, for the October report, USDA officials have far more actual harvest and crop data to work off, making them potentially less cautious over making changes to production data.
“They work off a lot more field samples for the October report,” on top of farmer surveys, Mr Nelson said.
And the October report has quarterly stocks data to work off too, with the next inventory report due at the end of this month.
‘Really curious’
However, might the September Wasde this time prove more of a game changer this time?
“The trade is really curious what the government will come up with for yield in corn, and yield in soybeans,” Mr Roose told Agrimoney.com.
“These could be important numbers.”
And there is plenty of uncertainty.
Mr Nelson said: “The trade is completely certain that there will be a lower yield number.”
But by how much? And there are actually some out there who believe that the USDA might stick with, or even raise, its corn yield estimate.
‘Stable crop ratings’
The argument for unchanged yield estimates for corn and soybeans is, actually, simple to make.
Weekly USDA crop condition data on both crops has shown no significant decline over the summer, despite talk of less-than-ideal weather.
And with the gut slot of harvest yet to come, the USDA might be tempted to stand back and indeed wait for October, and more field evidence, to make changes.
“The USDA is unlikely to trim their August corn and soybean yields of 168.8 bushels per acre and 46.9 bushels per acre respectively on Friday’s crop report, given stable crop ratings during August and early September,” said Richard Feltes at RJ O’Brien.
Long time coming
Still, the USDA would not avoid controversy by kicking the can down the road, given that most investors have long believed that yield downgrades are warranted.
In fact, the consensus figures expected from Friday’s Wasde – of a corn yield of 167.6 bushels per acre for corn, and 46.4 bushels are for soybeans – are, while downgrades, noticeably above those being factored in when weather concerns were at their highest last month.
Mr Nelson said: “Then, people were talking about a 164-166 bushels-per-acre corn yield, and perhaps 45 bushels per acre on soybeans.”
‘A little disappointing’
Besides, the actual evidence from initial harvest is showing yields a little below expectations – although commentators stress that it is still too early to be making conclusions.
“We have had some early crop harvest reports from the southern Corn Belt, and they have been a little disappointing,” Mr Nelson said.
Chris Narayanan Societe Generale said: “Initial harvest reports from the US southern states suggest that yields are running below average.”
At Chicago broker Rice Dairy, Jerry Gidel, chief feed grains analyst, said that while there were some “high yielding pockets” outside the Corn Belt, in the likes of northern Texas and northern Arkansas, he had been told there of yields of 150-155 bushels per acre compared with the typical 170-180 bushels per acre.
And there is talk of results from the eastern Corn Belt coming in a little below hopes too, with heavy rains early in the year blamed for leaching nitrogen from the soil, important for corn yield, and discouraging soybeans from forming decent root systems needed to ride out drier conditions which followed.
Mr Roose said: “People are expecting big numbers from the western Corn Belt, and the question is whether that can make up for what happens in the east.”
‘Dramatic jumps’
The trouble is that the USDA is already factoring in some “aggressive” numbers for yields in the western Corn Belt, noted Mr Gidel.
“They are talking about some dramatic jumps,” he said, flagging a forecast for the South Dakota yield at 160 bushels per acre, up 12 bushels per acre year on year, and a record high for the state by 9 bushels per acre.
For Minnesota, the estimate of 184 bushels per acre is up 28 bushels per acre year on year, and 7 bushels per acre above the previous record.
For Nebraska, officials expect a 187 bushels-per-acre yield, 7 bushels per acre above the previous record high.
Soybean conundrum
As an extra twist for soybeans when it comes to estimates yields, there is the potential that estimates based on year-on-year comparison are inflated by the fact that the USDA production figures for 2014 are seen as too high.
The so-called “residual” figure for soybeans, currently at 83m bushels, is viewed as evidence of an exaggerated 2014 harvest result.
“People make comparisons of pod count of this year with last year, and what that means for production,” Mr Gidel told Agrimoney.com.
“But if last year’s harvest was not as big as thought, that brings the 2015 number down too.”
‘Not the only issue’
And even assuming the USDA does cut its corn and soybean yield forecasts, as analysts expect, that is not the end of the story.
“Given that prices have come down, you might think that yield downgrades in the report would mean prices getting some support,” Allendale’s Rich Nelson said.
“But production is not the only issue. We have some problems with demand,” and particularly over US export sales for 2015-16, which for both corn and soybeans are well behind year-ago levels.
Strong crops, competitively priced, in South America “have taken a good chunk out of part of our early-season exports”, he said.
Mr Roose said that current export data suggested that the USDA estimate for corn exports was some 50m-100m bushels too high, and for soybeans “more like 300m bushels”.
Foreign focus
The worries about demand are putting a greater focus on crops abroad, and whether disappointments there can give US exporters scope for finding fresh supply voids to fill.
Analysts flagged in particular concern about European Union and Ukrainian corn production, besides of course over demand from China, a huge buyer of the likes of soybeans and feed grains such as barley and sorghum.
“The balance sheets in these countries will be closely looked at too,” Mr Roose said.
The extent of interest of foreign crop fortunes was unusually, in Agrimoney.com’s experience.
Certainly, it is one area in which the September Wasde may score far more highly than the October one.
