And speculators' unusually bearish take on Chicago Board of Trade futures and options coupled with ongoing pressure on South American weather could amplify any price-supportive effects should the yields fail to increase. The US Department of Agriculture will publish its annual crop production summary at noon EST on January 12. Domestic corn and soyabean yields were last estimated by the agency on November 9 at 175.4 and 49.5 bushels per acre, respectively.
Professional commodity funds often hesitate to be heavy sellers in the futures and options market at this time of year because the summer growing season is still young in Brazil and Argentina, the main rivals for US corn and soyabean exports. But optimism has been scarce for the funds in light of the record global supply situation. In 2018, money managers likely had the most bearish-ever start to a year when it comes to Chicago-traded corn and soyabean futures and options.
A large spec short position can often be a bullish factor for prices, but it particularly rings true in a weather market. The dry pattern in Argentina, which has yet to complete soyabean planting, has recently supported CBOT soyabean futures. If the market over-predicts the US crop size and South American weather forecasts are less-than-ideal by next Friday, commodity funds might start heading for the exit on their short bets - lifting prices in the process.
A final US corn yield near an unprecedented 177 bushels per acre has been considered a possibility by industry analysts. This would require a relatively large adjustment to November's 175.4 bpa, but it is not out of the question. USDA has increased corn yield in January only four times in the last 14 years. The latest instances dealt with the 2011 and 2012 crops, two of the worst in recent memory, perhaps suggesting that earlier estimates in those years were low-balled.
USDA also increased yield in January for the 2004 and 2009 crops, but both of those seasons featured record-breaking yields, something that may have occurred in 2017. 2009 is an interesting case because even though the 164.4 bushel-per-acre yield was the highest ever recorded at the time, many producers did not consider it a great crop as heavy rains late in the game drastically slowed harvest and compromised quality.
The 2017 corn harvest also progressed more slowly than normal, but the 2009 pace was substantially slower. Equal to or slower than the 2017 pace were those of 2008 and 2014, and USDA increased yield from November to January in both years. So the harvest pace does not necessarily indicate the direction of USDA's final estimate.
The largest November-to-January corn yield increase within the last 14 years was 0.9 percent in 2009. If applied to the November 2017 figure, final yield would land at 177 bpa - comfortably surpassing the previous year's record of 174.6 bpa. Analyst polls were not yet available at time of publication, but if the trade truly expects corn yield to rise, the market impact could be significant if that fails to happen.
The largest analyst miss on January corn yield was over the 2013 crop. The market predicted yield to increase one-half of a percent from the November figure, but instead it fell by 1.4 percent. Front-month futures spiked 5 percent on January 10, 2014, notching that contract's biggest single-day percentage gain of the year. The market may be less sure of what to do with soyabean yield, though, as USDA's estimate for the 2017 crop has practically remained steady since August. The trend in recent years has been for the agency's soya yield estimates to rise each month.
But last summer's weather may not have been as favourable for soyabeans as for corn. This is likely reflected in the lack of increasing yield targets and the lack of aggressive analyst forecasts. USDA's tendency on November-to-January soya yield changes is nearly opposite to its corn habit, as the soya figure is more likely to rise. The agency has reduced bean yield in January in only five of the last 14 years.
According to the Reuters poll history, analysts have not anticipated a January cut to soya yield in nine years, so it would be against the norm if the trade expects a smaller 2017 yield next Friday. One of the rare times USDA reduced yield in January came last year. The 2016 result also marked one of the largest recent disparities between the analyst prediction and the actual number. Traders were looking for a slight increase in soyabean yield, but USDA cut it by 1 percent.
Although there were other factors at play such as domestic stocks data and unfavorable weather in Argentina, the reduction in the 2016 US harvest boosted front-month soyabean futures nearly 3 percent on January 12, 2017, which was the contract's second-largest single-day percentage gain of the year. Despite all-time high domestic and global soyabean stocks, robust demand has kept the soyabean market afloat. This means that any decrease in the size of the 2017 US soyabean harvest - coupled with uncertainties about Argentina's crop and the fund's healthy short position - could easily be viewed as bullish by traders.