Numbers will be coming out at 11 a.m. CDT.
While attention following the release of the September round of supply and demand numbers is expected to focus on new-crop production estimates, global ending stocks projections could tell the real story.
USDA will release its latest Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports at 11 a.m. CDT Thursday.
WHEAT
The least shall become first, meaning for this report preview I'll start by talking about wheat. It is highly unlikely traders will show much interest, or any love, to the wheat market following Thursday's round of government numbers.
The pre-report average came in at 684 million bushels, an increase from the 663 mb USDA estimate in August and last marketing year's 590 mb. It is possible export demand will be trimmed back to the July estimate of 900 mb from August's 925 mb projection, accounting for the change.
However, the real story is expected to be in world ending stocks, where the average pre-report estimate came in at 193.1 million metric tons. This would be up slightly from the August WASDE projection of 193.0 mmt and last marketing year's 183.7 mmt. While the expected global stocks number is big, it still falls short of ending stocks numbers in the not-too-distant past (most recently the 199.4 mmt of 2011-2012). Still, it should be enough to keep the market under pressure.
The market's view of supply and demand remains bearish, with the Chicago December 2014 to May 2015 forward curve showing a strong carry of about 28 cents, similar to the 32 cents seen before the August reports. This would indicate that if a change in trend is to occur, it won't likely be supported by the commercial side of the market.
CORN
Certainly, if average pre-report estimates of 14.3 billion bushels of production on a national average yield of 170.7 bushels per acre match USDA's estimates, it will garner a great deal of attention. Add in an ending stocks pre-report estimate greater than 2.0 bb, and the market could sink faster than the Super Bowl hopes of Kansas City Chief fans (though it hasn't been that long since domestic corn ending stocks were above this level, the last being 2.114 bb at the end of 2004-2005).
Using all the average pre-report estimates to arrive at the average ending stocks figure of 2.004 bb gives us some interesting possibilities on the demand side. With total supplies theoretically growing to 15.523 bb (the August report had these at 14.243 bb), demand needs to increase about 85 mb to keep ending stocks at “only” 2.004 bb. It is possible USDA could up feed demand by 50 mb to 5.3 bb, increase ethanol demand by 25 mb to 5.1 bb, and grow exports by 10 mb to 1.735 bb. What could really be interesting is if these changes don't happen, possibly bringing into play the high-side of pre-report estimates for ending stocks of 2.258 bb.
World ending stocks are expected to come in at 189.4 mmt, one of the bigger numbers on the record books. In fact, one has to go back to the 1986-1987 and 1987-1988 marketing years when global ending stocks were calculated at 204.9 mmt and 197.7 mmt respectively. This bigger number in 2014-2015 could bring about the much-discussed, though only in hushed tones, slide below the $3.00 level in the futures market.
Does the market agree? While the carry in the December 2014 to July 2015 forward curve is bearish, it is not AS bearish as these pre-report projections would imply. The carry of about 28 cents covers approximately 68{ba1edae1e6da4446a8482f505d60d3b8e379ff6dedafe596d9ba4611a4e33a48} of total cost of carry (full cost of holding grain in commercial storage), just slightly over the bearish level of 67{ba1edae1e6da4446a8482f505d60d3b8e379ff6dedafe596d9ba4611a4e33a48}. Therefore, it is not out of the realm of possibility that the corn market could consider the September report as the most bearish it will see for the rest of the marketing year.
SOYBEANS
If NASS' weekly crop condition numbers are a good indication (and they aren't), then the pre-report average yield estimate of a record-high 46.2 bpa would seem accurate. And if so, the average pre-report total production of 3.882 seems logical. To come in at the expected domestic ending stocks figure of 452 mb, though, total demand would have to increase by almost 45 mb. This could be achieved with a 20 mb jump in crushings, 15 mb increase in exports, a 3 mb bump in seed demand, and an additional 5 mb of the always fun residual use.
But the domestic side may not tell the whole story, for the average pre-report estimate of world ending stocks came in at 86.1 mmt. If realized, this would be the biggest stockpile of soybeans the world has ever held at the end of a marketing year. Traders will keep an eye on global production estimates, particularly in Brazil. The August WASDE report pegged this at 91 mmt, in line with September private estimates.
As for the market, for whatever reason, it continues to take a wait-and-see approach. The carry in the November 2014 to July 2015 forward curve at 25 cents is little changed from the 28-cent carry seen just before the release of the August set of government numbers. This 25 cents accounts for roughly 42{ba1edae1e6da4446a8482f505d60d3b8e379ff6dedafe596d9ba4611a4e33a48} of the full cost of carry, an interestingly neutral reading on the commercial opinion of supply and demand given all the talk of exceedingly bearish numbers.
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Posted with DTN Permission by Haylie Shipp
