The US Agriculture Department will issue a new estimate of the shrinking US corn crop on Tuesday to a backdrop of market scepticism that its vaunted survey methods are falling short this year. USDA cut its forecast of corn yields by a sharp 4 percent in October, triggering cries of incredulity from traders over the abrupt change.
The November estimate, released at 8:30 am EST before the trend-setting futures markets open in Chicago on Tuesday, will again be based on USDA's tried and usually true methods of field samples and a survey of growers. "Our procedures, we pretty much do the same thing, month to month," said Joe Prusacki, director of the statistics division of the USDA agency that produces the crop report.
But Prusacki said "2010 is shaping up to be a year that did not follow historical patterns." Initial measurements of ears at sample plots in late summer indicated high yields but when the corn came off the fields harvest results were lower, prompting the revision downward.
It was the largest one-month reduction for corn since a 6.5 percent cut in November 1993 and erased early forecasts by private forecasters and the government of a record-large crop. Traders complained USDA was slow in spotting the downturn amid informal early-harvest reports of disappointing yields.
The brouhaha over the corn estimate followed complaints of yo-yo variations in USDA's quarterly corn stocks report. Ordinarily, USDA is the definitive source for US crop data and has a world-wide reputation for reliability. At times, its forecast of crops in other countries is more highly regarded than the local estimate.
Dennis Gartman, author of a daily commodity research note, said he was dismayed and dumbfounded by the swings in USDA's stockpile figures. On June 30, it was 300 million bushels smaller than expected while September 30 was 300 million bushels larger.
"The numbers gained and lost are atypically similar. Ain't that weird?" he asked during an interview. Investors are punished if government reports are imprecise, said Gartman. Markets respond to data when it is issued. It is hard to recover losses if the government revises its figures later.
"The revisions seem to be getting larger, not smaller, in economic information across the board. Why that is, I don't know," he said, citing reports on corn and US payrolls. Traders expect USDA will cut the corn yield for the third month in a row, to 154.6 bushels an acre from the October 8 estimate of 155.8 bushels an acre. It's all leading to the tightest supply in 15 years and pushing corn close $6 a bushel, stoking fears the prices could jump above $7 a bushel seen during the 2008 global food crisis.
There is historical reason to expect lower yields. There are three times from 1970 when USDA cut its yield estimate by more than 4 percent month-to-month. In those years - 1970, 1983 and 1993 - the final yield, on average, was 4 percent lower than the figure that resulted from the big cut.
A speedy and dry planting season - the first in three years - buoyed hopes of a mammoth corn crop this year. Looking back, analysts say excessive spring rain limited root development and dry weather in August kept ears from filling. Prusacki said an early gauge for yields while corn is immature, called kernel rolling, usually is reliable - "We have run that for years."
But this year, the historical correlation did not hold up and veteran private forecasters are calling on the government to change is methods, or be more nimble in adjusting to changing conditions. Kernel weights, and yields, were lower on harvest than the test indicated. The harvest data was used in the October report.
Emerson Nafziger, University of Illinois professor of agronomic extension, said "there was a great deal of field loss," perhaps two or three bushels an acre across Illinois, because corn was dry at harvest. "The geese are very happy." Many farms had a fall-off in yields. Nafziger suggested a combination of factors - cold soil at planting, crop residue that slowed new-crop emergence, rain that stunted root development and inadequate fertiliser. Corn-on-corn showed a larger drop in yield than usual compared with corn following soyabeans. At Iowa State University, corn specialist Roger Elmore said warmer-than-usual nights during August cut corn yields by shortening the time available to fill ears. Iowa and Illinois are the two top corn states.