(The opinions expressed here are those of the author, a market analyst for Reuters)
By Karen Braun
CHICAGO (Reuters) - Agriculture market analysts may be a little off on their forecasts for U.S. corn and soybean plantings, but a missed prediction on supply could turn into the main event on Thursday in terms of possible impact on Chicago-traded futures.
This is all part of the fun each year when the U.S. Department of Agriculture publishes prospective plantings and March 1 grain inventories on the last trading day of March. This year, those reports are scheduled for release on Thursday at noon EDT (1600 GMT).
There are some important trends and market conditions to consider when it comes to the pre-report analyst polls, as the expectations may not always match the reality, and this can lead to high volatility in the futures market on the day.
Industry analysts have pegged 2018 U.S. soybean plantings at an all-time high of 91.056 million acres, some 1 percent more than a year ago. The average corn guess is 89.42 million acres, fractionally lower than the final acreage in 2017.
But historical data suggests that Thursday’s soy number may come in higher than the trade peg and the corn number may be a little smaller.
Since 2005, analysts have underestimated soybean plantings in only five years, one of them being 2017. These years all have one common link: an elevated new-crop futures price ratio.
When the ratio of CBOT November soybeans to December corn is near 2.5 or above heading into the spring, U.S. farmers may prefer planting soybeans over corn based on better expected returns. Through the first three weeks of March, this ratio averaged 2.56, very similar to the same period a year ago. (reut.rs/2pM7byG)
In 2017, analysts’ pre-report guess of 88.214 million soybean acres was too low by 1.3 million acres. They were also too low on March 1 soy stocks, and the most-active futures contract fell 17 cents a bushel or 1.8 percent on report day. (tmsnrt.rs/2pIueeM)
This analysis transfers over to corn, as the elevated bean-to-corn ratio tends to coincide with analysts overestimating corn acres. They tend to underestimate corn plantings when that ratio is relatively low. (tmsnrt.rs/2IdaA0X)
This means that USDA’s corn target may fall below 89.42 million acres on Tuesday, despite the fact that planting corn is probably more attractive than it was a year ago since futures prices have performed better and the supply outlook has tightened.
If the trade acreage numbers are realized, it will be the first time in history that U.S. farmers plant more soybeans than corn “organically” instead of in response to government influence. Bean plantings topped those of corn only one other time due to heavy participation in the government’s 1983 acreage reduction program that was designed to curb corn production and stimulate prices.
Since 2012, market analysts either nailed or came in a little too high on planted wheat acres in prospective plantings.
Trade estimates place all U.S. wheat planted acres at 46.297 million acres, fractionally more than last year, but there is a chance that this number is even larger on Thursday.
From 2013 to 2017, USDA lowered its wheat planted area target by an average of 3 percent early on between the baseline projections and the agriculture outlook forum in February. For the most part, that ended up being the correct call in terms of final acres.
But in 2018, the agency increased this number by 3 percent, which is why the six-year streak of generally high-balling wheat plantings ahead of the March report could be in jeopardy.
Market analysts have had mixed luck in guessing March 1 corn and soybean stocks. But when their misses are big enough – by about 2 percent or more – it tends to dominate the futures price action for the day, even if the opposite signal is given by acres.
For soybeans, the stakes could be high. The average trade guess for March 1 stocks is 2.03 billion bushels, some 14 percent larger than 2007’s record. And 18 of the 25 analysts polled by Reuters submitted an estimate larger than 2.03 billion.
Dec. 1, 2017 soybean stocks hit an all-time high of 3.16 billion bushels, and in the three months that followed, exports were pretty disappointing. Meanwhile, soy processors were crushing at a record rate, but this almost certainly cannot offset the pile-up of supply from slow shipments.
The market also expects March 1 corn stocks to edge last year’s record with 8.706 billion bushels. Demand for U.S. corn started booming in early January, but this may not have had a sizable impact as of March 1 since a lot of the new commitments had not yet been fulfilled.
A year ago, analysts underestimated March 1 corn stocks by 1 percent, but the most-active contract rose 6.75 cents a bushel or 1.9 percent as the trade had been too high on corn acres. (tmsnrt.rs/2IYSAc0)
Trade estimates place March 1 wheat stocks at 1.498 billion bushels, down about 10 percent from a year ago. Analysts have underestimated this number in four out of the last 5 years.
Editing by Matthew Lewis