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Wednesday, 24 August 2016 15:59

Putting mid-growing season government reports in context

Written by  Jonathon Driedger
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Grain markets are naturally more volatile during the growing season.

 

Even a relatively modest swing in yield can have a meaningful impact on a crop’s balance sheet over the course of the upcoming year, shaping price expectations.
Given the uncertainty over final yields until the crop is actually in the bin, there are all kinds of room for individual opinions based on weather forecasts and private crop reports.
Official government reports can often act as an anchor for the trade. Not because USDA or Statistics Canada estimates are infallible (most particularly during the growing season), but because it gives the market a central frame of reference from which to compare all other opinions that are out there.
The past week we saw an updated August estimate released by USDA.
Both the corn and soybean crops were pegged at record levels. The corn yield was at a whopping 175.1 bushels per acre, translating into a crop size of 15.15 billion bushels. Soybeans were set at 48.9 bushels per acre, which would leave a total crop in excess of four billion bushels.
These numbers were above what most analysts had been anticipating. Conditions are excellent, and the weather forecast for the U.S. Midwest is mostly favorable, but the crop isn’t in the bin yet.
Future reports will be watched closely for any changes to the yield estimates. Statistics Canada was to provide its initial 2016 production estimate Aug. 23.
The fact the information is compiled by surveying farmers, and done well before harvest even began, means the final tally could change considerably.
Earlier expectations for the Prairie crop were huge, although estimates are starting to come down for some crops as the effects of excessive moisture in too many areas are starting to be felt.
A final official estimate is not made until December and even then, sometimes final production revisions can happen years later.
While the mid-summer government estimates on crop size are interesting, we can’t put too much weight on those figures quite yet.
Not long after harvest is complete, the market will start looking ahead to 2017 acreage intentions, and forecasting spring planting conditions. This includes speculating about the chances of a drought next summer.
(Jonathon Driedger is the Senior Market Analyst, FarmLink Marketing Solutions. Column courtesy Dan Hawkins)

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