Does the Market Read Too Much into the USDA's March 1 and June 1 Corn Stocks Estimates?

Abstract

The USDA’s Quarterly Grain Stocks reports provide important fundamental information to the corn market. Those reports reflect surveys of a large sample of corn producers and almost all commercial storage facilities in order to estimate the amount of corn in store at the end of each quarter of the marketing year (December 1, March 1, June 1, and September 1). The stocks estimate reveals the pace of corn consumption during the previous quarter and the magnitude of supplies available for consumption during the rest of the year, or in the case of the September 1 estimate, the magnitude of stocks carried forward to the new marketing year. The most important information revealed in the reports is the implied rate of domestic feed and residual use of corn during the previous quarter. As Figure 1 shows, in some instances, the revealed rate of consumption has provided a surprise to the corn market and has resulted in a substantial price reaction. While not all the price reaction can be attributed to the release of Grain Stocks reports because acreage and production reports are released at the same in some quarters, the impact of stocks report is obvious and has been the subject of considerable controversy in recent years (farmdoc daily, January 17, 2014; January 29, 2014; February 7, 2014; February 13, 2014; February 14, 2014; Irwin, Sanders, and Good, 2014). This raises the important question of whether the market correctly interprets information in the stocks reports. The corn market often seems to behave as if the magnitude of the surprise in the quarterly stocks estimate will be or should be fully reflected in changes in projected or actual levels of feed and residual use for the year. In this article, we examine changes in estimates of feed and residual usage of corn following USDA March 1 and June 1 stocks estimates and then ask how well the changes line up with an expectation of one-for-one changes with stock surprises.