Numbers.
When people start talking numbers with little description, do you simply start tuning it out and then realize you didn’t hear a bit of what was said?
No? Just me then… 😉
Crop reports contain a LOT of numbers and not a lot of explanation of how they relate to one another and how they impact you at the end of the day.
The August WASDE (World Agricultural Supply and Demand Estimates) report comes out TODAY, August 12th, 2020.
So before it’s released, I’ve put together a little summary about what this report is, why it’s important, and provided more context behind a few of the numbers that will be reported.
What is the WASDE?
Do you remember economics class and the coveted supply and demand curve?
Well, the WASDE report provides the industry direction on where supply and demand stand for a variety of commodities:
U.S. and world wheat, rice, and coarse grains (corn, barley, sorghum, and oats), oilseeds (soybeans, rapeseed, palm), and cotton. Additionally, U.S. coverage also includes sugar, meat, poultry, eggs, and milk.
Keep in mind that, in line with economic principles, if we’re expected to have a big crop (i.e. large supply) without an increase in demand, we’re likely going to see lower prices.
Conversely, if we’re expected to have a difficult year and a small crop (i.e. short supply) and demand stays the same or increases, we’re likely headed into a higher priced environment.
Why is the WASDE important?
The supply and demand for each commodity is constantly changing, and the WASDE report updates us each month with the balance sheet for each commodity.
It provides individuals in the industry a common source for this information.
While analysts still have their own opinions, biases, and analysis they use to make trading decisions, the industry still looks to the numbers printed by the USDA in the WASDE as the baseline.
Whether you agree or disagree with the numbers the USDA prints in the report, there should never be a question about the amount of research and analysis that goes into putting this together. There is a lot that goes into this.
Here’s a snippet from the USDA website that describes all of the information that is gathered in order to determine the numbers that ultimately get reported:
“The National Agricultural Statistics Service (NASS) is the primary source of information on U.S. crop and livestock production and stocks, while information on foreign production is gathered from many sources including USDA’s Foreign Agricultural Service (FAS) attaché reports, official data released by foreign governments, satellite imagery, and weather data. U.S. agricultural trade data comes from the US Census Bureau and FAS. The Economic Research Service (ERS) compiles and analyzes information on domestic use, prices, and agricultural policy, and various types of data from the Agricultural Marketing Service, Farm Service Agency, the Energy Information Administration (within the Department of Energy), and other government agencies is also used.”
You can find more information about the report here: https://www.usda.gov/oce/commodity-markets/wasde/faqs
What do the numbers reported for each commodity mean?
Let’s take a look at an example from page 12 of the July 2020 WASDE and direct our attention to the section for U.S. Corn Supply & Use.
At the very top, always be sure to pay attention to the dates.
The column farthest to the right is the current projection, the second column from the right is the previous month’s estimates, and the third and fourth columns from the right provide the numbers from the previous year and 2 years prior for comparison.
It’s handy to have these values to compare to without having to pull each report individually.
Considering I’m writing this prior to the August report, I’m going to provide more context around just three of the printed values that will be receiving a lot of attention this go around.
Yield: Considering the crop is still in the field, at this point yield is still a total estimate. Thus, the trade is watching this closely to see how the USDA is going to adjust the yield expectations from June. Up to this point, the crop has looked pretty good, so most analysts are expecting to see yield be ratcheted up.
Average analyst expectation for August: an increase up to 180.4 bushels per acre from July’s reported yield of 178.5
Production: This is another one that, because the crop is still in the field, is an educated guess at this point in the season. It tells us how much of the commodity is expected to be produced in the U.S. this growing season. Remember, higher production leads to a higher supply number, which usually keeps prices down.
Average analyst expectation for August: 15,182 million bushels, which is an increase over July
Ending Stocks: This is calculated by taking the Supply, Total – Use, Total. Thus, ending stocks tell us what we will be carrying over to next year. i.e. the amount we produced over and above what we are able to use. A higher ending stocks number is typically not favorable for prices.
Average analyst expectation for 20/21 ending stocks: 2,814
Again, this is an increase from what was reported in July
I hope that helped clear up some questions you had about the WASDE report, and to snag the report when it comes out, check out this link to the USDA’s website. https://www.usda.gov/oce/commodity/wasde
The report comes out promptly at 11 am CT and 12pm ET!