Analysts: USDA report could bring out bears

Farmers might want to brace themselves for a challenging Tuesday in the markets, when USDA releases its May World Agricultural Supply and Demand Estimates.

According to analysts, those numbers are expected to push the grain markets downward.

The reports will "at least initially be negative towards the market," predicts DuWayne Bosse of Bolt Marketing in Britton, S.D. "But market direction after the report will greatly depend on fund investment money and the outside markets."

New-crop corn ending stocks should swell to 2.3 billion bushels, due to higher corn acres this year and a trendline yield of 168 bu. per acre, Bosse explained. New-crop soybeans ending stocks are expected to be close to last year's carryout figure of 440 million bushels, he said.

While weather woes in South America are the main factor moving markets, a moderate drop (in production) is expected in the report, according to Rich Nelson, chief strategist for Allendale, a marketing firm in McHenry, Ill.

The report is coming out just as the market has had "an extraordinary rally that got overdone on production problems in South America," Nelson says.

Allendale predicts Brazil corn to fall from 84 million metric tons to 81.5 million metric tons, with Argentina soybeans falling 3 million metric tons to 56 million metric tons.

But U.S. corn plantings remain problematic, according to Nelson. "Look for U.S. plantings to be a bearish issue for the market," he says. The big question is new corn."

He notes a wide variation in trade expectations for new corn, ranging from a low estimate of 1.764 billion bushels to 2.557 billion bushels.

Here's what Allendale predicts:

Corn: 2.1 billion bu., which would be down from 1.854 billion bu. in March. Allendale's estimate is slightly lower than the trade average of 2.294 billion bu.

Soybeans: 430 million bu., which would be down from 452 million bu. in March. Allendale's estimate is slightly lower than the trade average of 405 million bu.

Wheat: 989 million bushels average, which would be up from 975 million bu. in March. The average trade estimate is just below 1 billion bu.

What should farmers do? They need to manage their downside risk and watch for volatility. "It's going to be extremely difficult to try to outguess these markets," says Mike Mock of The Andersons.