Friday’s Grain Stocks report could shake prices

Historically, report reaction has moved markets both up and down.

The next quarterly Grain Stocks report from USDA-NASS comes out on Friday, Sept. 29. There’s plenty of incentive to keep a close eye on the results, according to Farm Futures senior grain market analyst, Bryce Knorr.

First, they are data as of Sept. 1. That means they represent ending stocks for the 2016 crop marketing year for corn and soybeans – in other words, the amount of grain left over for 2017/18. Higher inventories equal headwinds for rallies, Knorr says. 

“Perhaps more importantly, these reports produced some violent reactions in recent years – sending prices both higher and lower,” he adds. “I’m not looking for big changes, but there’s potential for surprises.”

Ahead of the report, the average trade estimate for Sept. 1 corn stocks is 2.246 billion bushels, which is slightly lower than the agency forecast Sept. 12 but moderately higher than September 2016’s tally of 1.737 billion bushels. Soybean Sept. 1 stocks are also anticipated to be higher than a year ago, with an average trade guess of 339 million, versus 197 million in September 2016.

The report can offer insights into how much corn was fed during the summer quarter because stats on exports, seed use and ethanol use are fairly well established by now. The difference between June 1 stocks and Sept. 1 stocks, after subtracting known usage, should be the amount of corn fed.

Soybean demand is even better known at this time. Unanticipated changes in the report could signal that the 2016 crop was larger or smaller than USDA’s last official estimate back in January.

Rarely do prices stay put after the Sept. 1 Grain Stocks report is released. But do prices tend to go up or down? That depends on the particulars of each individual season, but on average the news can be bearish.

For example, soybean cash prices are up 25% of the time, down 68% of the time and the same 7% of the time one day after this report is released. One week later, soybean cash prices are up 29% of the time, down 71% and the same 0% of the time.

Corn has a somewhat better track record. Corn cash prices are up 27% of the time, down 63% of the time and the same 10% of the time one day after the report is released. One week later, corn cash prices are up 54% of the time, down 47% of the time and the same 0% of the time. 

The severity of price swings also relies on the particulars of each season, but they have gone up by more than 40 cents (in 2014) and down by more than 80 cents (in 2010) in corn.

Don’t forget that the reports are all based on surveys and therefore have sampling errors, Knorr notes. 

“Error is important because only a small percentage of it can add up to a lot of bushels when you’re talking 14 or 15 billion bushel corn crops and soybean crops well over 4 billion,” he says. “Even quarterly reports that produce results well within statistical tolerance can generate headline numbers that seem large.”

High-frequency trading systems can compound those issues. The question becomes: Do those initial traders set the tone for the day, or do they turn out to be an overreaction?

Be sure to visit www.farmfutures.com Friday for additional analysis and real-time grain price updates.

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