July 12, 2011

 

USDA crop report overshadowed by heatwave concerns

 

 

Corn prices could be underpinned by fears for a heatwave even if the US Department of Agriculture (USDA) raises estimates for domestic inventories in its monthly World Agricultural Supply and Demand Estimates (Wasde) report.

 

Most analysts believe that Tuesday's (Jul 12) Wasde report, which details estimates for world crop supply and demand, will introduce a period of weaker prices "heading into harvest" this autumn, said Drax Wedermeyer at US Commodities.

 

"It is expected to be a bearish report because of the increased acres," he said, after the USDA recently raised its forecast for corn sowings, besides finding more stocks left over from the last harvest than had been expected.

 

The Wasde data is viewed by many analysts as particularly difficult to predict, given the number of variables, such as a boost to exports prompted by the lower prices.

 

The consensus forecast is for the USDA to lift its estimate for America's corn inventories by 175 million bushels to 905 million bushels at the close of current season.

 

For the close of 2011-12, analysts on average expect a 300 million bushel rise to 994 million bushels in the stocks estimate, although many expect a higher figure.

 

"It's not difficult to get above one billion bushels, and then in a sneeze you have doubled the carryout," Mike Mawdsley at broker Market 1 said.

 

However, the report is being overshadowed by a heatwave which has already hit crops in southern states, sending the proportion of crops rated "good" or "excellent" in Texas, as of Sunday (Jul 10), down by four points to 13% over the previous week.

 

"The development of a powerful 'heat dome' continues to appear in all the models on the Monday (Jul 11) morning weather models," weather service WxRisk.com said.

 

"The dome develops around July 15 and spreads into the western Corn Belt on July 16," where it may last at least until July 21-22, and potentially for more than a week in the sensitive corn pollination period.

 

"We haven't had a real, heavy duty heatwave in pollination for a few years, since 2005," Jerry Gidel at broker North America Risk Management Services said. "If the Wasde corn stocks number comes in close to one billion bushels, where people are expecting it, people could move onto focusing on the weather pretty quickly."

 

With concerns that heavy rains have leached away some nitrogen fertilizer in areas such as Iowa and southern Illinois, Matthew Pierce at PitGuru highlighted the spread in yield estimates, around the USDA's current estimate of 158.7 bushels per acre.

 

Market 1's Mike Mawdsley added the crop forecasting signals were "about as confusing as we have ever seen in the middle of the summer", noting also the USDA's higher than expected corn inventory number.

 

"There are issues in finding physical corn, especially on the fringes, whatever the figures say," Mawdsley said. "In Indiana, they are offering US$0.50-0.60 a bushel over Chicago, and might still not get corn. Our guy in Texas has supplies running out soon."

 

The Wasde is expected to show the official estimate for US soy stocks at the close of 2010-11 lifted by 18 million bushels to 198 million bushels, following sluggish exports.

 

Export inspection data on Monday (Jul 11) showed 4.5 million bushels of US soy shipped during the first week of July, down one-third from the same period a year ago.

 

However, the forecast for inventories at the close of 2011-12 is expected to be cut by 21 million bushels to 190 million bushels, following a lower USDA estimate for sowings, attributed in part to farmers opting for corn instead.

 

For wheat, analysts expect the data to forecast a drop in US spring wheat production to a three-year low of 551 million bushels, even as total wheat production is seen coming in at 2.07 billion bushels, up 13 million bushels on the USDA's last figure, after harvest results showed the hard red winter wheat crop had been less affected by dry weather than feared.