Ahead of Tomorrow's USDA Reports: "Grain market calm - does it herald a storm?"

	Last	Chg
Corn	332-0	-1-0
Soybeans	980-4	-1-6
Wheat	419-4	-2-2

From Agrimoney:

Will the calm in Chicago grain markets precede a storm?

One factor that has been puzzling traders is the lack of volatility in corn and soybean option markets that normally precedes a US Department of Agriculture Wasde monthly crop report, the latest of which we will witness on Friday.

Wasde's are anyway highpoints of the ag market calendar, but particularly this time, with the release of the first spring crop yield data actually based on crop surveys, rather than observations of weather and the like.

"Usually before a big report, option volatility picks up going into the report and sells off once the numbers are released," said Joe Lardy at CHS Hedging.

"However, just before the biggest report of the summer, implied volatility has remained around the same point as we were at the beginning of the month."

'Ups the odds of heightened volatility'

At Chicago-based broker RJ O'Brien, Richard Feltes said that "it is unusual for ag option volatility, ahead of one of the most anticipated crop reports of the year, to be relatively stable".

It would appear to indicate a strong consensus – which could set the market up for big swings if the Wasde results fall much outside the expected figures.

"The take home point here is that the unusual compliancy ahead of Friday's crop report ups the odds of potential heightened volatility on Friday," Mr Feltes said, adding that it we are in for a surprise, a negative one (in price terms) looks most likely.

"Given the much-above-average row crop ratings versus last year—we would argue that odds favour NASS's August corn and soybean yields clocking in above trade expectations rather than below."

That could be a repeat of last year, when the USDA's August estimate for the US corn harvest "exceeded trade expectations by a record 360m bushels, while soybean production exceeded the average trade guess by a record 190m bushels.

"Both corn and soy markets finished dramatically lower, with corn/soy contracts posting unusually large $0.41-a-bushel and $0.75-a-bushel daily trading ranges."

Bullish surprise?

Still, there is the potential for a bullish surprise on Friday too, especially given some results from crop tours showing smaller-than-expected yield results...

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