CME: Accuracy of Reports Dependent on Weather

US - According to Steve Meyer and Len Steiner, USDA will release its September Crop Production report and World Supply and Demand Estimates on Friday morning.
calendar icon 10 September 2009
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The reports will provide the latest thinking by USDA statisticians and economists regarding US and world grain and oilseed supplies, demands and prices. The results of DowJones’ monthly pre-report survey of analysts appear below. Note that the Yield and Production numbers are for the crop to be harvested in the coming weeks but the Carryout numbers are for 2010 — NEXT FALL — since that it the carryout figure that will drive prices in the coming crop year. These survey results are about the best estimate we have of the expectations that are reflected by CME corn, soybean and soybean products futures prices as we approach the report.

As can be seen, there is a wide range among the estimates, primarily due to this year’s delayed planting and slow crop maturity. A related DowJones story quoted one analyst as saying that the lack of crop stress this summer (due to cool temperatures and sufficient to ample moisture in most areas) gives us the potential for a record soybean yield. Elsewhere, the same story mentions serious concerns about soybean yield potential in late planted areas. So, the analysts views are definitely a mixed bag.

Suffice it to say that the accuracy of these estimates and Friday’s USDA estimates is still VERY DEPENDENT on weather – most notably the date of the first killing frost. Both the soybean and corn crops have the potential for excellent yields but they are far behind schedule due to late planting and this summer’s cool temperatures.

The charts below show historical relationships between season-average farm prices for corn and soybeans and the ratio of year-end stocks to total usage (ie. the stocks/use ratio). We have also indicated where season-ending stocks/use ratios for 2010 would be based on USDA’s August usage forecasts and the production numbers in the table above.

The projected corn stocks/use ration would be 13.7 per cent, 1.1 per cent higher than last year’s 12.6 per cent but in the same neighborhood as the ratios of the past three years. If Friday’s report actually shows that ratio, we would not expect USDA’s corn price forecast to change much from the $3.10—$3.90 range of the August report. That price forecast as well as actual prices for the 2008-09 crop represent lower corn demand than did the prices for 2007 and 2008.

The projected soybean stocks/use ratio of 7.9 per cent for 2010 would be the highest since 2006 (see the lower chart) and, like corn, 1.1 per cent higher than last year’s level. The higher stocks/use ratio would warrant a lower forecast for the season average farm price with the range centered on $9 — if USDA thinks soybean demand has been stable since last year.

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