28th Jun 2012, by Agrimoney
Macquarie cut its estimate for the US corn yield for the second time in a week, with Rabobank downgrading its forecast too, thanks to the dry weather which is overshadowing the release of data normally one of the highlights of crop investors' year.
Macquarie, which last Friday downgraded its forecast to 156.5 bushels per acre, cut the figure further to 154 bushels an acre, citing "the poor weather conditions across the southern Corn Belt".
Rabobank also reduced its forecast to 154 bushels per acre, down 3 bushels per acre from its last estimate, confirmed last week, and the US Department of Agriculture figure of 166 bushels per acre.
The revision is the latest in a series of downgrades blamed on hot and dry US conditions deemed a threat to corns' sensitive pollination period, fears which sent Chicago's best-traded December corn contract up a further 1.6% on Thursday to $6.43 a bushel – taking gains this week above 16%.
Indeed, the weather scare threatens to turn into a sideshow - for corn at least - the USDA crop plantings and stocks reports on Friday which investors have been anticipating since the initial sowings briefing in March.
Yield vs area
Investors expect Friday's data to show a small increase, of 230,000 acres, to 96.1m acres in US corn sowings, compared with the March report.
However, even a bigger revision, of perhaps 1m acres, may not be enough to drag investors from their focus on the US weather outlook, Morgan Stanley said, terming yield hopes "a bigger driver".
"We expect that the market will continue to focus more on weather and the national corn yield in coming weeks, than on a circa 1m-acre swing in corn planted area," Morgan Stanley analyst Hussein Allidina said.
"Even 97m planted acres, 1.1m acres higher than the USDA's current estimate, would leave the 2012-13 stocks-to-use ratio below 10% if yields do not top 159 bushels an acre — a growing possibility."
The stocks-to-use ratio is a much-watched metric in commodity markets, measuring the availability of raw material and therefore the pressure on buyers to pay up to secure supplies.
Double-crop question
Where the acreage data may have more impact is on the prices of soybeans, for which their vulnerable development period still some weeks away, meaning the yield threat does not yet loom so large.
While the market has been factoring in sowings of 75.6m acres, 1.7m acres above the USDA's initial forecast, it was "doubtful" this level would be reached, given the setback that dryness has posed to seedings of so-called double-crop soybeans, planted on land cleared by the winter wheat harvest, Mr Allidina said.
Macquarie said that even though an early winter wheat harvest and high soybean prices had given growers "both the ability and incentive to plant a record-large double-crop soybean area, we don't see it happening".
"Dry conditions are restricting the farmer's ability to plant," the bank said, estimating double-crop soybean area at 5.2m acres, a rise of 8.9% year on year but well below the record of 7.1m acres set four years ago.
Time lag
Wherever the data do come out, there must be some question over their validity, given the continuing harsh weather, Societe Generale said.
"The survey period occurred during the first two weeks of the month. Since that time, conditions have worsened even further, and estimates may still overstate actual acreage in Friday's report," SocGen analyst Christopher Narayanan said.
Still, the unexpected knock-on effects of the drought mean that even the idea of disappointing double-crop soybean acreage may have an offsetting factor, with some growers whose corn crop has been lost seeing the oilseed as an alternative for late sowing.
Mike Mawdsley at broker Market 1 said: "I have heard of disking corn and planting soybeans in south west Indiana," a state where corn crops are in particularly bad shape.
At FCStone, commodity risk manager Jaime Nolan Miralles highlighted "growing reports of producers in the eastern Corn Belt abandoning corn for crop insurance with intentions of planting to soybeans".
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