Provided by South Dakota State University Extension
The recent government shutdown resulted in a lack of fundamental information on supply and demand factors that market participants rely upon to make marketing decisions. This has been highlighted most recently by the USDA announcement that they would not release the October World Agricultural Supply and Demand Estimates (WASDE) Report that was scheduled for release on Friday, Oct. 11, explained Lisa Elliott SDSU Extension Commodity Marketing Specialist.
Elliott said the October WASDE is important because it is a vital report that market participants rely on to gauge potential production of corn and soybeans. It incorporates the National Agricultural Statistics Service (NASS) objective yield results as of Oct.1.
Leading up to the report, NASS enumerators collect mature or nearly mature samples of corn and soybeans, dry down the samples and weigh them to estimate yield. The estimated weights are incorporated into a statistical model to predict yields based on historical sample data at similar maturity levels.
"Even though the government reopened prior to Nov.1 allowing for samples to be taken for the November objective yield survey, critical information will be lost because of the large number of sample plots that have already been harvested," Elliott said.
She explained that by November, these missing corn and soybean plot yields will utilize the Sept. yield results for those plots where generally number of ears, ear length, ear girth and number of pods per acre were the variables mostly used for estimating yield.
"These variables that indicate yield may not have the accuracy that can be obtained by actually harvesting a small sample of the plot, drying it down to the accepted delivery moisture, and weighing the sample in a lab," she said.
For a more accurate look at production, market participants may need to wait for the January WASDE report, when producer production survey results may adjust production estimates. Meanwhile, Elliott said more market participants will rely on private firms who estimate yield figures too.
"Generally the results by the USDA-NASS from the objective yield survey are given greater weight for indicating actual yield than alternative methods used by private firms or even NASS producer surveys where improper sampling, reporting error, etc. can cause biased or inconsistent results," she said.
The October WASDE report would also show how the USDA reconciled the fewer planted acres reported in the September Farm Service Agency (FSA) survey.
"Market participants expect, on average, that both corn and soybean harvested acres to be decreased from the September WASDE report; however, market participant estimates vary greatly," Elliott said (see Table 1).
Some variation may be due to how market analysts view the percentage of planted acres to be harvested Elliott explained, but there also could be differences in knowing how USDA will incorporate the FSA data to adjust their current planted acre estimates which are derived from the June Acreage survey.
"There is a difference of 1.9 million acres for projected soybean harvested acres between market participant high and low estimates. The difference for corn was 2.2 million acres for projected corn harvested acres between the high and low estimates," she said.
If one uses the trade's high and low corn estimates and assumes the Sept. WASDE yield projection at 155.3 bushels per acre, Elliott said the trade's estimates would vary by 340 million bushels for corn (table 2). For soybeans, if one uses the trade's high and low estimates along with the September WASDE yield projection (41.2 bushels/acre), the trade varies by 78 million bushels (table 2).
Table 2. Corn and Soybean WASDE and Trader Production Estimates (billion bushels-trade estimates calculated by assuming September WASDE yield projections)
She explained that FSA acres are typically less than WASDE reported acres because all producers are not enrolled in government programs that require them to report acres.
"Examining the historic relationship between September FSA acres and the January WASDE soybean planted acres shows that the WASDE acres are typically 101 percent of FSA acres. However, this year the September WASDE soybean planted acres figure is 103 percent of the September FSA acres," she said.
Using the historical relationship, along with the typical harvested acres to planted acres percentage (99 percent), estimated soybean harvested acres would be 75 million. However, she said if you assume the adjustment would only be as large as the largest decrease from the September to October WASDE over the past six years (a 1.6 percent decrease in 2010), harvest acres would be at 75.2 million.
"Both of these figures are on the low side of market participants' estimates," she said.
Examining the historic relationship between the September FSA acres and January WASDE corn planted acres shows that the WASDE planted acres are typically 103 percent of September FSA acres. However, this year the September WASDE corn planted acres figure is 106.5 percent of the September FSA acres.
"Using the historical relationship along with the typical harvested to planted acres percentage (91.5 percent), estimated corn acres would be 86.3 million. Again assuming that the adjustment would only be as large as the largest decrease from the September to October WASDE reports over the past six years (a 0.7 percent decrease in 2009), harvested acres would be 88.5 million. The market participants on average are closer to the 88.5 million acres estimate," Elliott said. "When the historical relationship between September FSA acres and January WASDE acres was used, harvested acres were estimated at 86.3 million, which is even lower than the low trade estimate."
Elliott said market participants will have to wait to see how USDA officials reconcile planted acres with the FSA September survey until the government ends the shutdown.
We also would likely have seen some adjustments made to ending stocks for the 2012/2013 marketing year and 2013/2014 marketing year beginning stocks, due to the September Quarterly stocks report reflected in the supply and demand estimates.
"Both of these estimates would show an increase in ending stocks for corn and soybeans for the 2012/2013 marketing year, as reflected in the Quarterly stocks report," she said. "This would then increase the beginning stocks of the 2013/2014 marketing year."
Other Missing Fundamental Data
Since the shutdown, the market is without the weekly export report figures that the Foreign Agricultural Service (FAS) typically provides. Elliott explained that many market participants do not know how much of each crop is being exported, which is extremely important to the soybean market this time of year when soybean export demand is seasonally greatest.
"Other demand information that points to usage is currently unavailable. This includes the weekly ethanol production report and potentially the monthly biodiesel production report," she said."One piece of technical trading information that is was not available during the shutdown is the positions of market participants in commodity markets that are reported in the weekly Commitment of Traders (COT) reports by the U.S. Commodity Futures Trading Commission. Since the recent government shutdown, the public does not know how commercial and non-commercial traders' positions may have changed over this time span."
Elliott reminds readers that this article only highlights a few of the many market information pieces that the U.S. government typically provides and publishes for market participants that aid in the price discovery process.
"These reports provide the market with more full and transparent information. Market participants may now rely more on private information, which may be less independent than government provided market information and more costly to obtain," she said. "When markets lack vital information on supply and demand, markets will be more inefficient. This lack of information will increase uncertainty for market participants, which may result in increases in volatility (more variation in prices)."