Get ready for a big move in corn prices. USDA's June Grain Stocks report comes out tomorrow morning, and it tends to swing the market.
The past six releases of the Grain Stocks report have provided the biggest shocks to the grain market of any USDA reports, analyst Randy Mittelstaedt told a CME Group discussion this week.
July corn futures made limit moves the day of the June stocks report in each of the past three years, said Mittelstaedt, research director at the independent brokerage firm R.J. O'Brien in Chicago.
USDA is scheduled to release both its quarterly Grain Stocks and annual Acreage reports June 30, providing the department's best estimates of June 1 grain and soybean supplies and planted acreage of major crops.
Analysts' estimates vary considerably, but on average they expect USDA to report June 1 corn stocks just over 3.3 billion bushels, down for 4.31 billion last year. They also expect modest declines in stocks of soybeans, to 590 million bushels, and wheat, to 825 million bushels.
Corn planting estimates range from 89.5 million to 91.5 million acres and average nearly 90.8 million, compared with the March Prospective Plantings estimate of 92.178 million acres. Analysts expect soybean plantings on about 76.5 million acres, little changed from Prospective Plantings at 76.6 million, and all wheat acreage at 56.6 million, off from the March projection of 58 million acres.
Corn stocks key
Corn numbers will be the center of attention because of the tight stocks, high prices, past surprises in stocks data, long planting delays, and flood damage. Soybean stocks are more predictable thanks to reliable crush data, and trade expectations for acreage historically have been close to official estimates.
For corn stocks, average pre-report trade estimates have missed the USDA number by an average of 217 million bushels in recent reports, Mittelstaedt said. In each of the past three years, the June stocks report sparked a limit move in July and December futures, and the day's move usually set the tone for market direction in the following week and month.
Even ahead of the report, “The volatility of these markets is absolutely phenomenal these days,” said Mittelstaedt. In 2005-06, the average daily range for corn prices was 2 to 4 cents. “In the past four months it's been 18 to 20 cents daily range, high to low,” he said.
Focus on weather
Big as the stocks report is for the market, weather will be even more critical.
“For the next six weeks, the main focus is going to be on the weather here in the United States and what it may mean for yield potential and crop potential,” said Mittelstaedt.
About 17 million acres of corn went into the ground after the typical planting time. Pollination on late plantings will be pushed into a normally hotter time of summer. If the crop doesn't hit hot weather, it will still face added risks of damage from early frost.
“We've come out of the cold phase of La Nina,” said Larry Heitkemper, vice president of weather services at MDA EarthSat Cropcast Ag Services. “The models show neutral conditions will probably dominate this summer.”
However, neutral conditions don't necessarily translate to a summer of great growing conditions.
“We are concerned a little bit that dryness will build across the western belt in mid July and reduce moisture for corn and soybeans,” he said in the CME Group discussion. However, he expects heat moving up into the Corn Belt during July likely will last only few days at a time. He expects additional dryness in northern areas during July, while the southern Delta likely will get moist, tropical weather. “The big heat source in the South will not go away by August,” he said.
Bigger risks for the Corn Belt may arrive in September, said Heitkemper.
“We end up with increased chances of frost in the northern Plains and northwest Midwest,” he said. That prospect is “something they do not need right now with slowness in development and planting.”
If summer weather takes a different course, said Heitkemper, the next most likely prospect would be cooler, wetter weather in the eastern half of the country, including all of Iowa. That, he said, would “open the eastern United States to more reliable rainfall but mess up the growing degree days.”
Acreage impact overrated
Mittelstaedt said USDA's Acreage report gets more attention than it deserves.
“It gets a lot of media, but what it all boils down to is the yield will be the determining factor on balance sheets,” he said.
In the most recent two years of very wet springs – 2008 and 2002 – USDA reported corn acreage substantially higher than trade estimates.
Given average yields, a change of 1 million acres equals a change of about 150 million bushels in the year's crop. But in the past five years, the U.S. average yield has covered a range of 15.5 bu. per acre. The impact of only 2 bu. per acre is 180 million bushels of corn.
“So a very narrow yield change can outweigh or overshadow acreage loss very quickly,” said Mittelstaedt. “Acreage is a very small impact on the overall production situation. That is why weather is so critical in the next six to eight weeks.”
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