Monday, February 8, 2010

Will the USDA back track on 2009 US corn production number?

Markets don’t like shocks, but that is exactly what they got in mid-January when the USDA increased the size of the 2009 US corn crop when most thought they would trim it. This effectively tipped grain markets over the edge; it was just too difficult to hold hard won gains, given the weight of market fundamental factors working against the market.
But the market chatter is that the USDA may be overestimating the size of the 2009 US corn crop. Even though this may not be a silver bullet for the grain market, it may be a factor in grains winning back some positive sentiment, or at least helping to neutralise current negative market sentiment.

The thrust of the doubters’ argument is that the USDA has not adequately taken into account the amount of ‘shrink’ attached to this year’s crop. This year’s rain interrupted, late harvest, saw higher-than-normal moisture levels in stored corn and this could explain why the USDA crop number was well beyond expectations.

Other elements of doubt cast over the 12 January survey results relate to: the low test weights of this year’s crop, and the large amount of corn that may be damaged due to it being stored under higher moisture. While the later may not have much impact on total production number, it will be interesting to see where this corn might find a home.
US ProFarmer warns that the January USDA survey asked growers to estimate yields adjusting for moisture and test weights, so the January survey should have accounted for survey noise associated with unusually high moisture and unusually low test weights.

It is likely that any changes that the USDA makes to its January estimates will have been more than made up for by an improvement in growing conditions in Sth America. While the Sth American situation will come as no surprise to most traders, the 9 March special USDA corn production update has the potential to surprise the market again.

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