Farmers who were expecting the markets to so some signs of strengthening with the release of Wednesday’s USDA report were left disappointed by the information contained within the report. Although wet weather, and poor planting conditions have seriously delayed crop progress this spring, the report did very little to reflect this in either the planted acreages or expected yield. So how could the USDA seem so unaware of a production problem that is so blatantly obvious?
The core issue with the early June USDA Report is that the data collection for this document occurs in May and in the third week of May the planting delays and poor growing conditions had yet to develop. Essentially we received late May information in mid-June. The delay is easily explained as the result of two factors, the first being that it takes time to process the data and create the report, and the second is that there is a much more significant USDA Quarterly Stocks Report due out on June 28th, and they’re saving up the headline news for the later release.
Prior to Wednesday’s report, the grain markets had been gaining strength, based in part on nagging concerns over how this spring’s weather might impact 2013’s total production. This strength vaporized when the USDA confirmed both acreages which were in line with the March 28th planting intentions and yields very similar to the May monthly estimates. While we all know that this seems factually unlikely, the reality is that the futures markets trade the gap between people’s expectations of the market and the news of the day. The June 12th report created substantial gap, and prices moved quickly to fill it. We can’t blame the market for the sharp negative moves of this week as they were based on hard data, but we can start to plan for the next set of reports to be released.
The more significant Quarterly Stocks Report from the USDA will come down on June 28th. By reputation, all of these four annual releases are market shakers, and Wednesday’s report even suggested in its wording that there was the potential for revisions in the upcoming report. It feels like the television news when they list the upcoming headlines so that you’re certain to come back after the commercial break and that tease of upcoming adjustments is certain to hold our interest for the balance of the month. The USDA’s decision to delay making estimates about acreage and yield potential until the weather situation develops more completely is a respectable choice. In late May there is a lot of potential for speculation about what will and will not get planted, by late June that is no longer a guess.
The question which producers need to wrestle with as the month of June progresses, is how optimistic am I that the June 28th Quarterly Stocks Report will strengthen grain prices? If you still have grain to market, then you need to decide whether you are in or out before the USDA deals the market its next hand to play. Realistically, it seems likely that 2013’s planted acreages need to be shaved back, flooding and other excess moisture issues should put negative pressure on yield, and the sharp inversed in old crop futures indicate that ending stocks are tighter than the current projections suggest they are, but then it all comes down to trading the gap between the market’s collective expectations and the figures that the USDA reports.