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Pre-USDA Report Thoughts are Bullish, Analysts say

January’s Report has rally history.

DES MOINES, Iowa -- The final U.S. 2019 crop production estimates, to be released Friday, are expected to get smaller than previous estimates, according to prereport projections.

On Friday, the USDA will release its January Supply/Demand Report, Dec. 1 Quarterly Grain Stocks Report, and its WASDE Outlook at 11:00 a.m. CT.

While all eyes will be on the governmental agency’s crop production numbers, all of these reports are seen as important in defining the upcoming year.

Investors are wondering if an early snow in the northwest Corn Belt will trim USDA’s harvested acres and yield estimates. Meanwhile, the other trade thought is that USDA cannot ignore increased soy oil exports and Chinese soybean imports that appear higher than implied in its balance sheet.

For 2019 corn yield, the average analysts’ estimate is 166 bushels per acre vs. 167 last month.

If realized, that would drop production to 13.513 billion bushels vs. the USDA’s November estimate of 13.661 billion.

Soybeans

The 2019 average soybean yield is expected to be printed at 46.6 bushels per acre, slightly below November’s estimate of 46.9 bushels per acre.

If realized, the U.S. 2019 soybean output would total 3.51 billion bushels, slightly below November’s estimate of 3.55 billion and sharply below 2018’s output of 4.428 billion.

U.S. Ending Stocks 2019/2020

For corn, stocks at the end of the marketing year (Sept. 1) are estimated at 1.77 billion bushels vs. 1.910 billion last month.

The soybean ending stocks are pegged at 431 million bushels vs. the USDA’s estimate in December of 475 million.

For wheat, U.S. ending stocks are expected to drop to 970 million from the USDA’s previous estimate of 974 million.

Regarding the report’s soybean demand numbers, it’s worth noting that marketwatchers expect to see the USDA’s China total soybean import estimate of 85.0 million metric tons (mmt) as too conservative, up just 3.0 mmt from the year before.

“ We assume Jan 10 will see a jump in USDA projected consumption for China. The current pace points to an eventual 92 to 94 mmt import number,” says one trader choosing anonymity.

World Crop Production 2019/2020

While the USDA is expected to drop Brazil and Argentina’s 2019/2020 corn crop outputs slightly, both countries’ soybean crops are expected to be left unchanged from last month’s estimates.

Trade Thoughts

Britt O’Connell, cash advisor for Commodity Risk Management Group, says that this week’s trade has been fairly lackluster, as all position ahead of our big WASDE and Dec 1 Quarterly Stocks Report on Friday.  

“As prereport estimates come in it seems as if the bullish sentiment may be building slightly. The question will be the same as each report – less about what the numbers are and more so how differently they are from trade expectations. I am not expecting massive changes; given the way harvest went, it would seem reasonable to adjust harvested acres,” O’Connell says.  

O’Connell says that her farmer-customers don’t appear to be signaling a major adjustment in yields from last month’s estimates.

“It will be interesting to see how the USDA treats the crop that remains ‘standing’ in the field. From what I understand, it is going to be considered as on-farm storage. Due to the nature of 2019, it could be a long time before we feel like we have a firm grasp on what the 2019 crop really is,” O’Connell says.

Greg Lumsden, product leader at Cargill MarketGuide, says that heading into tomorrow’s USDA report, there is skepticism around aggressively bullish surveyed expectations for corn and beans.  

“Comparing average trade estimates to previous USDA report numbers, traders are pricing in meaningful reductions in acreage and yield simply due to the difficulty around harvest, particularly in the northwest. When you step back and look at the numbers, it appears that most analysts are overly fixated on the northwest Corn Belt, ignoring NASS’ process, better yields relative to expectations elsewhere, and the strong likelihood of a resurvey in the spring,” Lumsden says.  

Production on corn and beans is more likely neutral in this report, Lumsden says. “However, even a reduction would be challenged to reach bullish market expectations. Longer term, seasonal demand, corn inclusion rates in feed, corn conversion rates in feed and ethanol, and potential Chinese buying will all work to keep the market supported – though demand changes will take time to play out and new crop themes will gradually dominate sentiment,” Lumsden says.  

Cargill’s MarketGuide expert sees the wheat market as vulnerable to a downturn, requiring active Chinese buying, lower winter wheat acres, and new crop production concerns to hold or extend from current prices.       

Al Kluis, Kluis Commodity Advisors, says that a USDA surprise could put the brakes on grain prices.

“We will need a bullish report for both corn and soybeans to keep prices pushing higher. We are building in risk premium, since many expect the crop size to be cut. If we see minor changes in crop production, then we could see corn and soybean futures pull back,” Kluis stated in a daily note to customers.  

January Report’s History

While January’s USDA Reports that include the final crop estimates for the previous year have created only normal noise in the markets following their release, history does show that they can pack a punch.

For instance, in 2016, this same report sent the soybean market up 37¢ the day after its release and up 64¢ the week after its release.

For corn, that same 2016 January report had less of an impact, sending prices up slightly the day after and up 8¢ a week after its release.

“The largest difference between the USDA and LaSalle has been yield and harvested acres. We are still holding out for a lower production number on Jan 10 based on poor harvest weather, and a continuation of poor spring weather last year,” says the Chicago-based trader choosing anonymity.

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