Could an October Surprise Jolt the Markets?

October 6, 2016 02:46 PM
USDA Grain Unloader

Despite expected record-breaking production estimates, without a big surprise, the Oct. 12 USDA WASDE report is projected to trigger relatively small market adjustments.

“I think the market is pretty well priced at this point for both corn and soybeans, and it will take a major surprise on the production front for a major move,” says Larry Shonkwiler, of Advance Trading, in Bloomington, Ill.

Don Roose, president of U.S. Commodities, holds a similar view.

“I don’t expect it to move the needle out of the range, he says. “Ho-hum.”

The October report, which comes near the close of a mammoth bumper crop harvest, “marks the last meaningful change in U.S. production estimates,” explains Mike North, president of the Commodity Risk Management Group, in Platteville, Wis.

Analysts expect soybean production to increase. Reports suggest soybean yields could go up by 2 to 3 bu. per acre, and corn yields also remain strong, according to North.

“It will then be a function of demand estimates as to how the bottom line shapes up,” he says, adding that corn and soybean exports also are expected to rise.

Here are some estimates for key numbers in the report, according to Intl FCStone:

Corn Production: 15.163 billion bu., up from September’s 15.093 billion bu.

Corn Yield: 175.2 bu. per acre, up from September’s 174.4 bu. per acre.

Soybean Production: 4.357 billion bu., up from September’s 4.201 billion bu.

Soybean yield: 52.5 bu. per acre, up from September’s 50.6 bu. per acre.

The expected production increase would come at a challenging time, with farmers facing a record global grain glut that has pushed down grain prices to 10-year lows.

The looming supplies also are putting pressure on grain markets.

“The trade will be looking for signs that the high [production] number is in so that it can start focusing on the demand side of the ledger,” says Arlan Suderman, chief commodities economist at Intl FCStone, in Kansas City, Mo. “First, how large will USDA go with its soybean production estimate?”

The report also will show how large China’s demand is for soybeans, Suderman says.

Although futures prices tend to hit bottom after the funds feel they've accounted for all of the market's bearish data, the cash market must still deal with the reality of this year’s massive crops versus limited storage capacity, Suderman says.

“Basis can firm once the crop is locked away, but rallies will likely be limited until fears of farmer selling has eased,” he says.

What should producers do? Some experts advise to market grains defensively. North says farmers should be willing to make sales into rallies if markets trend higher, while defending their grain marketing with call options.

“It is good to identify different resistance levels in the market at which to make sales and have those ready to go in advance,” he says.

Check back Wednesday, Oct. 12, for a complete summary and analysis of the next WASDE report.

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