by Agrimoney.com
US farm officials need, in one of the key crop reports of the year, to cut their estimate for the domestic corn yield by well over 3 bushels an acre to restart the rally in prices of the grain.
Traders - who have for weeks been speculating over the corn yield estimate in Thursday's US Department of Agriculture monthly Wasde crop report - believe on average that the forecast will be cut by 3.1 bushels per acre to 155.6 bushels per acre to reflect damage from July's heatwave.
Official meteorologists this week confirmed that July bought Oklahoma and Texas their warmest months on record and, crucially, in the US as a whole the "heatwave was characterised by unusually warm minimum temperatures, during nights and early mornings" – a particularly negative feature for pollinating corn.
The proportion of US corn rated in "good" or "excellent" condition has, over the last four weeks, fallen from 69% to 60%, with some of the big growing states seeing even bigger declines. In Illinois, the figure has dropped from 67% to 50%.
However, a downgrade in the USDA yield estimate at least as large as the market consensus suggests has already been factored into prices, analysts believe.
Trigger points
"We have dialled in a yield of about 155 bushels an acre," Don Roose, the president of Iowa-based broker US Commodities told Agrimoney.com.
"A yield figure of 153 or less and we would be up the limit," meaning a rise of the maximum $0.30 a bushel that the Chicago exchange (currently) allows on corn.
"A figure of 160 bushels per acre, and we would be down the limit."
Jerry Gidel, at North America Risk Management, estimated that a figure of 152 bushels an acre below "means we would not trade for two days" – meaning two sessions of limit-up prices.
Likely to be underwhelmed
At Australia & New Zealand Bank, Paul Deane estimated that a figure of 155-156 bushels per acre had been accounted for, saying that it would take a cut of at least 6 bushels an acre to foster a jump in prices.
"We think this is unlikely at this stage in the season, and so maintain the view that the market is likely to be underwhelmed by any [yield] changes," he added.
US Commodities believes that the estimate could easily be kept at 158.7 bushels per acre, noting that the majority of the crop, situated above a line represented by Interstate 80, had fared significantly better than that below.
"The question is did the better conditions to the north make up for the problems in the south?" Mr Roose said.
Data doubts
The impact of the yield figure on prices will also be complicated by a review the USDA is undertaking of its acreage forecasts in some states which suffered a particularly wet spring, with Mr Roose estimating a potential cut of 200,000 acres to corn plantings, and 300,000 acres to the soybean figure.
However, it also clouded by doubt over the likely accuracy of the USDA data, following a series of estimates which have been deeply questioned by traders.
"Industry believes that corn is in real trouble on yields due to a too wet spring planting season and the fourth hottest July in history," Tim Hannagan at PFGBest said.
"But the trade also believes the USDA is behind on its crop condition surveys and may not give a accurate yield estimates on corn, and that it may take until September or even harvest results on the October report for the true story."
Bearish risk
Sure, the report is the first of the growing season to be based largely on field observations, rather than estimates drawn from surveys and projections - but this does not necessarily mean it will give an accurate figure.
"This is not really the time of year that you get good yield estimates," Mr Gidel said, noting that they can still drop dramatically by harvest, as last year, when it fell from an estimate of 164.7 bushels an acre to a final figure of 152.8 bushels per acre.
Furthermore, the USDA will be using average data on issues such as ear weights to form its yield forecast, an issue some traders believe may end encourage a yield overestimate, given that is the potential for ear formation, rather than the density of plants, which is seen as the issue.
"If the USDA does end up using the five-year average ear weight, rather than what may actually be out in the field, it's possible the numbers could be construed as bearish as plant population was most likely on the heavy side for the majority of the Corn Belt," Jon Michalscheck at Benson Quinn Commodities said.
'Intolerable for the balance sheet'
Thursday's report will also be scoured for its estimate on the soybean yield, with traders, on average, expecting the USDA to trim its estimate for the figure by some 0.6 bushels per acre to 42.8 bushels per acre.
"A 42.8 bushels per acre yield, coupled with a 400,000 decrease in planted acres which could eventuate from the resurveyed states is probably intolerable for the balance sheet," signalling higher prices needed to ration demand, Victor Thianpiriya at ANZ said.
However, some analysts believe that the USDA may even raise the yield estimate, with the critical period for soybeans ongoing, and the crop heading into it without the damage suffered by corn.
The proportion of US soybean rated good or excellent is, at 61%, down a more modest three points over the past four weeks.
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