Latest WASDE report surprises markets

The United States Department of Agriculture stunned cereal grain markets with its latest corn production estimate but analysts aren’t buying what the USDA is selling.

The USDA had higher acres and much higher yields than the trade was expecting in its Aug. 12 World Agricultural Supply and Demand Estimates (WASDE) report.

It pegged the corn crop at 90 million acres, well above the average trade estimate of 87.7 million acres. Its yield forecast was 169.5 bushels an acre, well way above the trade’s forecast of 164.9 bu.

Production is forecast at 13.901 billion bu. of corn versus trade expectations of 13.193 billion bu.

Arlan Suderman, chief commodities economist with INTL FCStone, said he will begrudgingly accept the USDA’s acreage number because it’s the best guess around but he highly doubts the yield forecast.

“I expect these yield numbers to be dramatically different in September,” he said.

The USDA did not “walk the fields” as it has in the past to determine the August WASDE yield estimate. Instead, it surveyed farmers and looked at satellite data.

The USDA pegged the average soybean yield at 48.5 bu. per acre, higher than the trade estimate of 47.6 bu.

“I don’t put a lot of stock in these yields. I expect both of them to go down,” Suderman said in a webinar.

He said 2019 is reminiscent of 1993, another year with a wet start. Crop ratings, crop tours and grower surveys that year were misleading.

“We didn’t recognize how small the corn and soybean crops were until we really got in the field in October,” said Suderman.

And that’s when prices started to rally.

Bruce Burnett, analyst with MarketsFarm, is also skeptical of the USDA’s numbers.

“Whether or not this (corn production) number is even close to where we are going to end up in November is still subject to a lot of speculation,” he said.

“I would expect that the (yield) number is going to be lower if we have sort of a normal end to the growing season.”

In other words, frost is a big risk factor with this year’s severely delayed U.S. corn crop.

Corn futures prices fell 25 cents per bu. the day the WASDE report was released and wheat was pulled down 10 to 15 cents.

“Today we’ve done technical damage to corn in terms of price movement,” said Burnett.

“That sort of creates this downward momentum here that probably is going to cloud things until we get the next USDA report.”

Wheat is harvested earlier than corn and is more widely grown around the world, so the market already has a pretty good handle on global wheat production. It is going to be larger than last year but not excessive.

“In essence, in terms of moving prices on the wheat side, we almost have to take direction from corn,” he said.

The Aug. 12 report was a blow to wheat and barley but Burnett agrees with Suderman that there is potential for those crops to rally later this fall if the U.S. corn crop shrinks, although he noted spring wheat won’t get as much of a bounce because it isn’t used for feed.

Suderman is forecasting 1.698 billion bushels of 2019-20 corn carryout versus the USDA’s 2.279 billion bushels. He believes the average farm cash price will be US$3.95 per bu.

John Duvenaud, publisher of Wild Oats Grain Market Advisory, said the WASDE report was more friendly for soybeans, although soybean futures prices were also pulled down by corn.

The USDA forecast 3.68 billion bu. of production, which was below the average trade estimate of 3.8 billion bu. Ending stocks were estimated at 755 million bu., which was beneath the trade forecast of 821 million bu.

“For soybeans it was not really such a terrible report at all,” he said.

“From a Canadian point of view it might be mildly bullish for canola because the soybean numbers are a little bit better.”

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