“Having a wet planting season does create some difficulties in forecasting a lot of this information.”
– Shawn McCambridge, Prudential Bache Commodities
The U. S. government’s unprecedented correction of crop data on Oct. 28 gave some relief to grain markets battered by financial turmoil, but it may also have bruised the credibility of the U. S. Department of Agriculture.
USDA revised its outlook for U. S. corn and soybean crops, correcting an Oct. 10 report which sparked a huge sell-off in grain futures at the Chicago Board of Trade (CBOT).
The correction sent corn and soy prices higher Oct. 28 and may have put a floor under the market, which has been battered by the global credit crisis.
But it cast doubt over USDA data, which is relied upon by traders in the U. S. and the world over.
“I’ve been in this business since 1981 and I don’t remember them ever making a correction in the middle of the month like this,” said Jack Scoville, analyst for The Price Futures Group.
Don Roose, analyst and president of U. S. Commodities in West Des Moines, Iowa, said the revision “is an unprecedented adjustment. The market balance tables are tighter than what we thought we were working with.”
The new data is expected to give U. S. corn and soybeans new upside potential.
“It’s bullish for corn and soybeans. Barring any outside influences such as the Dow, the dollar and crude oil, it should help set a bottom for these crops,” said Joe Victor of Allendale Inc., a commodity research firm.
USDA said it revised the numbers after discovering discrepancies in a Farm Service Agency (FSA) database of producer-reported crop acreage used by the National Agricultural Statistics Service (NASS).
It lowered its projection for corn harvested acreage to 78.2 million from the previous 79.2 million; corn production was lowered to 12.033 billion from the previous 12.2 billion; and ending stocks for 2008-09 were lowered to 1.088 billion bushels from 1.154 billion.
Soy harvested acreage was dropped to 74.4 million from the previous 75.5 million; production was lowered to 2.938 billion from the previous 2.983 billion; and ending stocks for 2008-09 were lowered to 205 million bushels from 220 million.
“Dropping the acreage back is bullish. That (October estimate) triggered one of the big sell-offs. Now, we’ll get some of that back. The whole thing is a bizarre episode,” Scoville said.
In June the corn and soybean markets were driven to record-high prices by the worst flooding in the Midwest in 15 years that delayed plantings and destroyed some of the crop.
Since then, as the global economy melted down into a recession and teetered on the brink of a dreaded depression, grain and soy prices were nearly halved with corn and soy around one-year lows and wheat at 16-month lows.
“Having a wet planting season does create some difficulties in forecasting a lot of this information, so I can understand why they went back and did this,” said Shawn McCambridge, analyst for Prudential Bache Commodities.
Despite USDA’s correction, the market is still up in the air about exactly how much of each crop survived the massive flooding.
“With not even half of the corn crop out of the field we still have a long way to go before we really come up with a firm production and yield figure,” McCambridge said.
Grain and oilseed markets are expected to remain very volatile and at the mercy of global equity markets where the U. S. stock market plunged to 5-1/2-year lows on Oct. 27 then soared nearly four per cent early Oct. 28.
“I would be surprised if it could hold on to any more gains. Most traders should be looking to sell into this rally this morning,” said Gavin Maguire, analyst with Chicago brokerage EHedger.
– Additional reporting for Reuters by Christine Stebbins,
Julie Ingwersen, Karl Plume, Mark Weinraub and Lisa
Shumaker in Chicago