Huge grain supply dampens impact of USDA report

CHICAGO, Ill. (Reuters) — The U.S. Department of Agriculture’s crop reports, which often provide huge shocks to the market, have been met by a shrug this year, with price moves and volume muted by the massive global supply of grains.

For example, the USDA’s monthly supply and demand report June 9 slightly raised its forecast of U.S. winter wheat production when the trade expected a decrease. Also, it raised its forecast for global wheat production to 739.5 million tonnes, up 1.7 million from May, mainly because of two million tonnes increase for Russia.

That would have sparked a significant price move on wheat futures markets when global grain stocks were tight a few years ago.

However, the trade mostly ignored the report and focused instead on dry weather in North American spring wheat regions.

Generally, price swings are much less pronounced this year for corn, soybeans and wheat futures following the release of the USDA’s biggest agriculture reports, which provide a window into global and U.S. supply and demand.

The depressed volatility on what have typically been the most active trading days of the month is weighing on the bottom line of even the biggest traders.

The huge grain handlers, which use the futures market to hedge their physical purchases as well as speculate for profits, have cited slow market action as one of the reasons for weakening profitability at their operations.

“If you are only moving … five cents off of those reports, you cannot expect to buy or sell the market and try and make seven cents,” said Tom Burnham, trade strategist at INTL FCStone.

“In general, traders prefer more volatility and more surprises.”

The price swings that come after the government’s monthly supply and demand reports, acreage estimates and quarterly stocks views are down almost 27 percent from 2016, according to an analysis of Reuters data.

The daily moves on report days in 2017 are almost 46 percent below the average of the previous 10 years. In 2017, corn, soybean and wheat futures have averaged just a 1.17 percent price move on major report days. That compares with an average move of 2.16 percent on report days during the previous 10 years. In 2016, the average move was 1.6 percent.

Bumper crops around the world have muted the impact of the monthly reports from the government. When grain supplies were tighter, the reports would frequently spark limit moves within minutes of their release time.

“The surprises are not big enough to move the markets a long way,” said Randy Fortenbery, professor and chair of small grains economics at Washington State University. “The bigger the stocks are, the bigger surprise it takes to move the market in one direction or another.”

In the past, post-report rallies provided an opportunity for farmers to lock in prices that would guarantee they booked a profit for crops they had yet to seed or grains that they had been holding in storage.

On the day the USDA released its May supply and demand report, which gives the government’s first estimate of new-crop usage and production, the volume for the most-active soybean contract was only 30 percent above the average for the entire month of May.

A year earlier, soybean volume on the day of the May report was 91 percent above the May average.

For wheat, volume for the most-active contract was 15 percent above the monthly average, compared with 27 percent higher in 2016. Corn volume was 45 percent higher than the May average, comparable to 46.5 percent in 2016.

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