Rocky road for corn stats, but bulls stay the course

The USDA has taken corn-market participants on a roller coaster ride these past few months. The first acreage estimate for the 2011-12 crop in March surprised the market with a higher-than-expected forecast of 92.178 million acres. Although US corn area was slated to expand by 4.6% over the previous year, planting-season weather was challenging and after a few days of selling, the bull market resumed regardless.

Normally, the USDA does not revise acreage in the June crop report, but uses the March intentions figure to calculate production estimates until the June 30 update is released. In response to some horrible planting conditions, however, which included massive flooding and potential lost acreage, the USDA slashed the acreage estimate in its regular monthly crop report by 1.5 million acres, or 1.6%. The market traded up to new record highs, but the rally was short-lived. The reaction to that report turned out to be the (temporary?) peak. Prices plunged by more than $1.50 per bushel over the next couple of weeks.

The unfolding events took an even stranger turn. The June 30 acreage update was widely expected to be a confirmation of the downward acreage revision in the crop report. The USDA indicated a certain urgency in making the rather uncommon mid-month revision when the acreage update was only a few weeks away. As such, the average guesstimate for the June 30 figure was 90.767 million acres, just a tad above the revised crop-report estimate of 90.70 million acres.

When the USDA actually raised the figure to 92.282 million acres, slightly higher than the March intentions number of 92.178 million acres, traders were completely confused. Even more compelling: That “very bearish” news initially pushed the market to a new low, but that was the low of the correction and the market rallied by well over $1 per bushel over the following two weeks.

That was arguably the most erratic USDA flip-flop we’ve ever seen.

Traders didn’t know what to expect for the July crop report. Incorporating the extremely bearish June 30 acreage and quarterly stocks report, the average guesstimate for 2011-12 ending stocks was for a jump to 994 million bushels, up from 695 million bushels in 2010-11. The actual figure was 870 million bushels.

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