Our taxes support USDA’s annual outlooks, which begin at the outlook forum in February and end with the final January report. In between are monthly outlook reports that are adjusted with ongoing weather and global and domestic economic conditions.
Think what we want about USDA, but their data and economic research deserve our attention and respect.
Price forecasting is basically all about supply and demand. Most private firms source much of their supply data from USDA, but it seems the demand side of the equation eludes many.
This is where price discovery can aide market outlook. I watch what USDA says and see how the markets react. Traders, producers, end users and exporters have skin in the game; USDA employees do not, but that does not mean government economists don’t understand economics.
2022: A YEAR FOR THE AGES
This was a year for the ages with war, weather, economics and political influences. USDA recognized these factors in its May WASDE report; however, the market had already been forming its own ideas.
In May, USDA put 2022/23 corn exports at 2.4 billion bushels. By December, it dropped exports to 2.075 billion bushels — a loss of 375 million bushels in just six months.
UP THEN DOWN
Corn prices peaked with the May report (see corn price chart). USDA systematically lowered demand, especially exports, and the market responded in kind, implying the highs in early May would not be sustained.
Soybeans seemed to be more consistent with USDA’s outlook for crush. In December, USDA pegged it at 2.245 billion bushels, which was only 10 million bushels less than the May estimate. Soybean exports dropped 155 million bushels between May and December.
Soybeans, like corn, found price resistance in April, May and June. Both corn and soybeans lost nearly all the 2022 gains and are both trading near or below pre-Ukrainian invasion levels.
Taken alone, the fundamentals show post-report reactions. Taken together, price action and USDA fundamentals can be an aid to price outlook. Sometimes it isn’t a matter of what direction prices are headed but where they are not headed.
The direction since May was obvious as USDA shaved demand, especially in corn. Is feed demand reduction next? The long-term outlook might show corn prices have lower targets yet to come.
Farmer Jerry Gulke is president of Gulke Group, a market advisory firm offering daily advice and low-cost order execution.
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