What Surprises Will the September Grain Stocks Report Hold?

Tomorrow could be a risky day for the grain markets. Why? USDA will release its quarterly Grain Stocks report. 

“We all know that this report has the potential to make big moves,” says Brian Splitt, co-founder of AgMarket.net. “With these quarterly reports, USDA has a habit of finding or losing 100 million bushels or 200 million bushels of corn here and there.”

USDA will release quarterly stocks data on Friday, Sept. 30 at 11 a.m. CDT.

Ahead of the report, the average analyst estimates are as follows: 

This report will not include new-crop production estimates, reminds Joe Vaclavik, president of Standard Grain.

“This is USDA’s final take on old-crop carryout situation for the marketing year that ends on Aug. 31,” he says. “If there will be a surprise, it will most likely be in corn since it is hard to gauge feed demand.”

Splitt discussed the upcoming report and more with Chip Flory on AgriTalk:

Identify Your Market Risk

In preparing for tomorrow’s report, Splitt encourages you to think about the potential risks and look for tools that could help mitigate those risks. For most farmers, the risk is the market goes down, he says. 

“There’s been a lot of talk recently that this report has to be bullish on stocks because look at basis and look at spreads,” he says. “Let's not forget, you know that quarterly stock report that we had back in June.”

When the June 30 Grain Stocks report was released, Splitt says July corn was trading more than $1 above the September corn contract. Yet the report came out to show there was actually more corn on hand, year over year. 

“So, it didn't give us that indication that the stocks are actually as tight as what the market would be suggesting,” he says.

Splitt says the downtrend on the December corn chart right now is around $7. In September, he says the two highs for the December corn contract have been $6.99 (set on Sept. 12, when USDA issued its monthly WASDE and Crop Production reports) and last week, when it hit $6.98.

“I think if we take out those highs tomorrow, then the stocks report came in pretty darn bullish,” he says. “That means we're breaking out to the upside.”

On the flip side, if the report delivers a bearish surprise, Splitt says farmers will want some protection for the downside. 

“This isn't rocket science,” he says. “You identify what your risk is, and you try to find a good risk-reward play. Not all producers are OK with margins, so if you're not OK with margin, don't sell the call to buy that put. If you're OK with a little margin exposure, then you can have that conversation with your broker. That’s how you manage your risk.”

Pay Attention to Basis and Barge Traffic

Until recently, Splitt says many farmers he works with had a sell-out-of-the-field strategy for soybeans. Now, soybean basis is collapsing in some areas, especially along the major rivers.

For the week ending Sept. 17, barge grain movements totaled 209,600 tons, according to USDA’s grain transportation report. This was 16% lower than the previous week and 24% higher than the same period last year. Also, for the week ending Sept. 17, 130 grain barges moved down river — 25 fewer barges than last week. There were 583 grain barges unloaded in the New Orleans region, 68% more than last week.

“The weather market in the U.S. we're dealing with right now is when is it going to rain? When are these water levels going to be replenished? When you think about these low water levels, the barges can't carry as much product,” Splitt says. “So now it takes more barges to move the same amount of beans. That increases the loading and unloading time, too, for the same amount of product.”

With lower basis bids, Splitt says more farmers plan to put soybeans in the bin.

“That may work out in the big picture, but let's remind ourselves that if we do have a South American crop that gets planted OK in a somewhat timely fashion and we don't have a repeat of a third La Nina, a large Brazil bean crop this year could stifle basis even worse,” he says. 

Splitt says his recommendation is still to sell soybeans out of the field versus storing them. 

“If you feel like you want something to participate in a South American weather story, then we would simply use some March options,” he says. “You’d sell the beans out of the field and use March options to give you that potential to participate in the weather market.”
For corn, he is leaning toward storing it and looking for profitable basis opportunities. 

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