Arguably the most anticipated event of the year for any grain trader is upon us: the November USDA Worldwide Agricultural Supply and Demand Estimates (WASDE). Scheduled for release on Friday at noon ET, this report is virtually guaranteed to move the grain complex. Which direction is the billion-dollar question.
The November report is always a big one, but this year’s edition holds extra significance as the USDA canceled the October report due to the partial Federal Government shutdown. The lack of official government data at such a critical time of the annual North America farming cycle has the potential to create lock-limit moves across soybeans and corn, in particular. The October cancellation was the first ever in the USDA’s 150-year-plus history, setting up potentially unprecedented movements in price.
Analysts Expect Bearish Numbers
Since the last WASDE release on Sept. 12, corn and soybeans have remained markedly bearish. John Payne at Daniel’s Trading in Welcome to WASDE Week points out:
- December corn has lost 45 cents and counting.
- November soybeans has shed $1.40 off its price.
Despite some hot, dry weather in August, anecdotal yield reports from the fields have surprised to the upside and the downtrends in corn and soybeans reflect this sentiment. Todd Hultman, a DTN grains analyst, believes soybean and corn output will land on the high end of previous USDA estimates based on pre-report guesses he has witnessed:
Throughout 2013, USDA estimates of the corn crop have ranged from a low of 13.76 billion bushels in August to a high of 14.14 billion bushels in May. Soybean estimates have ranged from September’s low of 3.15 billion bushels to July’s high of 3.42 billion bushels. As we approach Nov. 8, pre-report guesses are expecting corn and soybean numbers at the high end of this year’s estimates. (How Good is the November WASDE Report?)
Regardless of the final numbers we see in the WASDE, the November report is usually fairly accurate. Senior analyst at Water Street Solutions, Arlan Suderman (a must follow on Twitter @ArlanFF101), notes that the disparity in estimated soybean yield per bushel from November to the final report range from 0.4 to 0.7. For corn, the difference can range up to two bushels either way. The real wild card is which direction output will land—more or less. Looking across the last twenty growing seasons, the final soybean yield was larger than in the November report 12 times and smaller eight times. For corn, the final yield was larger 11 times out of 20.
A focus on Demand?
Assuming the soybean and corn output does match bearish expectations, all attention will turn to demand. In the past few months, demand for both crops remains robust. Big sales headlines have helped keep the grains from completely succumbing to a full-on bear market. The respective estimated carry-outs could play an even larger role than supply in how the markets react Friday.
News You Can Use
Regardless of the USDA data revealed Friday, I will be flat at its release. In a world of high-frequency and programmatic trading, the volatility just seconds, let alone minutes, after the report’s release can inflict pain on a small-fry investor like yours truly. I will bide my time and wait for a direction to be established before I act. At the end of the day, it is not the data itself that is important, but how the market reacts to it. This is as true today as it was 100 years ago.
Before you consider trading the November WASDE, I highly recommend checking out Trading Commodities and Financial Futures, Fourth Edition by George Kleinman, president of Commodity Resource Corp. In the book, George describes his “GK’s significant news indicator,” which is essentially the price before the release of market-moving news. Use this as pivot point to help determine where to enter and where to place a protective stop. It can help you keep perspective and a level head when markets are moving and emotions run wild.
Best of luck Friday!