Higher-Than Anticipated WASDE Report Numbers Result in Bearish Grain Markets

USDA Reports

On Tuesday, August 12th, the USDA released its latest World Agriculture Supply and Demand Estimates, and as usual, had some unexpected numbers for analysts and producers. Higher-than-anticipated yield estimates in both corn and soybeans resulted in lower grain prices for both crops.

Most of the pre-report analysis was based on the USDA’s latest weekly Crop Progress report, released just prior to the WASDE report, which rated the U.S. corn crop at 70 percent good to excellent, similar to the previous week’s rating. That similarity had many analysts expecting the USDA to release similar yield estimates as in July.

Other pre-report analyses had based their little-to-no change projections on the tough growing conditions that have plagued producers in the Eastern Corn Belt this growing season.

Looking at the numbers, for corn, the USDA estimated that 2015-16 corn yield at 168.8 bushels per acre vesus 166.8 bushels per acre in July and the average trade guess of 164.5 bushels per acre. As a result, the total US corn production increased to 13,686 million bushels, up 156 million bushels versus July estimates and 359 million bushels higher than the average trade guess.

For soybeans, the USDA had similar yield increase estimates, pegging the 2015/16 US soybean yield up to 46.9 bushels per acre. This is in comparison the 46 bushels per acre estimate in July, and the average trade guess of 44.7 bushels per acre. As a result, the US soybean carryout increasing to 470 million bushels, or 169 million bushels higher than the average trade guess. In turn, November soybean futures closed down 61 ½ cents per bushel.

As with corn, the pre-report analysis of similar estimates was based on poor growing conditions in certain parts of the country, and the crop condition report good-to-excellent rating of 63 percent, versus 70 percent one year ago.

Are the USDA’s numbers to be believed? Only time will tell, though the September WASDE report should have some actual harvest numbers to figure in. Analyst Marcus Ludtke of Commodity Marketing Co. firmly places himself in the skeptical camp regarding the latest WASDE estimates.

He writes,

“What’s potentially misleading about the USDA’s yield decreases relative to a year ago? 2014 was a record corn yield year for a number of states including the four states of IL, IN, MO, and OH. Illinois’s record yield in 2014 eclipsed the previous record by 20 bpa (previous record was 2004 – 180 bpa), Indiana’s by 11 bpa (2013 – 177 bpa), Missouri’s by 24 bpa (2004 – 162 bpa), and Ohio’s by 2 bpa (2013 – 174 bpa). Therefore 2014 in my opinion should almost be considered an outlier based on just how remarkable and unprecedented of a growing season it was. I don’t think it should be used as an accurate representation of trend of even slightly above-trend line yield potential.”

Ludtke similarly considers 2012 an outlier as well, due to the extreme drought that plagued the entire Midwest.

In light of those considerations, he hypothesizes: “If we’re to make any sort of sound comparison to the USDA’s yield estimates on Wednesday, I think we need to measure them versus the 4-year average corn yields from each of those states during 2013, 2011, 2010, and 2009.”

Until then, farmers will keep doing what they do best, and start preparing for harvest.

Source consulted:  Ludtke, Marcus. “US Corn Weekly Update: August WASDE Rattles Market.” See It Market. See It Market. 13 Aug. 2015. Web. 20 Aug. 2015.