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The Most Important Number on the USDA Report?


The January 12th USDA report is a very important report for the grain markets, one that will likely set the tone for months to come. The importance of this report has increased since the USDA decided to combine the monthly WASDE supply and demand report with the December 1st Quarterly Grain Stocks Report. This means that there can be a number of moving parts on this report for both supply and demand. The most important number on this report might be the December 1st Quarterly Grain Stock Report as it will have a significant impact on the USDA’s production figures from last year.

As it stands, the USDA is estimating a national average yield of 169.3 on 80.7 million harvested acreage for a production number of 13.654 billion bushels of corn for last year. The December 1st Quarterly Grain Stocks report will offer significant insight into the accuracy of these numbers, and if things do not line up the USDA will make changes accordingly on the Jan WASDE report rather than waiting a month to do so. If, for example, the December 1st socks come in less than expected this will suggest that the USDA has been overstating production which could lead to a (maybe significantly) tighter balance sheet and carry over and vice versa.

So, the big question is – what will the Dec 1st grain stocks tell us. While it is a fools errand to try to predict the unpredictable USDA we have to think that there is a chance that grain stocks turn out smaller than expected. Thinking about where most yield estimates were back in September and October when we were getting into harvest the average guess was about 4 to 6 bushels an acre lower then the number the USDA is using today. Also, this was an interesting year that was highlighted by record rain fall in many areas early in the growing season followed by near perfect conditions later on. This brings into question how the USDA has handled the flooded out areas of fields and how that has affected the harvested acreage / national average yield mix.

There is little doubt that last year’s corn crop was a good national average yield but, the question is how good and on how many acres? Logic would reason that a 169.3 national average corn yield is possible if we omit the vast flooded out areas of fields that we saw in the Eastern half of the corn belt. However, the question will be – has the USDA taken enough out of harvested acreage? Or, they could leave harvested acreage as is but they may need to lower the national average yield based on zero yielding flooded out acres. Well, the December 1st grain stocks number will tell us if the USDA has it right or not.

One of the other clues we may have had is basis. With this huge corn crop (according to the USDA) we were expecting corn basis to drop significantly under the pressure of burdensome bushels, especially in the west. However, basis has been quite a bit stronger than expected and stronger than we should expect seasonally. To some extent this could be a product of producers not wanting to sell at low prices. A good chunk of this corn crop likely made its way into storage to hope fro higher prices. But, unless storage capacity has increased exponentially over the last few years there should still have been a wall of corn driving basis down. Again, the quarterly grain stocks report could shed some insight into this.

One way or another this January 12th USDA report could be a big market mover, it historically has been. There are a lot of potential changes the USDA can make this time around on both the supply and demand sides of the balance sheet. At the end of the day we could have balance sheets that look completely different that what we have been trading for the last few months. Tuesday could be an interesting day.

Source: Ted Seifried, AgWeb.com

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