Are You With Us WASDE?

Have you ever watched the 1983 hit Trading Places starring the beloved Eddie Murphy and Dan Akroyd? The movie's climax occurs when the United States Department of Agriculture releases the crop progress report as part of the World Agricultural Supply and Demand Estimates, also known as the WASDE for short. The monthly WASDE report provides annual forecasts for global crop production and use of cotton, oilseeds, rice, wheat, and coarse grains. I won’t spoil this classic film, but the WASDE report released in the film included market moving information on the orange crop in Florida. Traders dressed in specialty jackets in the trading pits immediately reacted, causing the price of orange juice futures to fluctuate. Even in 2024, the WASDE brings potentially significant market movements for agricultural commodity prices and financial impacts to the suppliers and users of those products.

The movie does an excellent job of depicting how important the WASDE and other USDA reports are and how the USDA works to keep it confidential until the report’s release date. In preparation for the WASDE, USDA analysts are locked in one room where they aren’t allowed to leave sometimes for more than 24 hours. USDA analysts complete data collection from domestic and foreign sources to estimate the supply and demand for corn, soybeans, wheat, and other crops. Ultimately, the USDA determines an average price based on supply and demand factors. The supply for crops is based on current plantings and/or harvested acres, the amount exported, and also on the ending stocks from the previous month. The demand or use forecasts are determined discretely by each crop. Corn for example has three main uses: animal feed, industrial uses like ethanol, and food production.

The report is closely watched year-round, however, American farmers pay extra close attention during the growing season as it can have decidedly favorable or unfavorable impacts on their bottom line. 2024 is no different. The United States has largely had a favorable growing season so far. Late June and early July rains in the Midwest have not only kept the grass green but the corn and soybean crops are thriving. Some areas in Texas and the Dakotas haven’t been as lucky but the largest producing corn and soybean states also known as the “I” states, Iowa, Illinois, and Indiana, have experienced mostly positive growing conditions. Strong growing seasons are a double-edged sword, however. On one hand, farmers will always want their crops to do well but if everyone raises a strong crop then that means the prices are likely to decline as crop yields rise across the board. In some competitive respects, Illinois corn farmers hope there will be a drought in Iowa or Nebraska while Kansas wheat farmers hope for excessive rains in North Dakota. The loss for one geography means potentially better income opportunities for another.

The strong growing conditions across the “I” states have bred less-than-ideal commodity prices with the average cash price of corn coming in at $3.95/bushel for 2024. Just for reference, the average price of corn in 2023 and 2022 was $4.88/bushel and $7.43 respectively. This equates to billions of dollars in lost farm revenues. Soybean markets are experiencing a similar story with the average cash price of soybeans so far in 2024 at $11.10/bushel. In 2023 and 2022 the price of soybeans per bushel was $14.16 and $14.50. Even though crop yields are looking to be favorable relative to recent crop years, the low prices have USDA analysts expecting 2024 net farm income to drop to 24.1% from 2023. Thankfully the Federal Crop Insurance program includes Revenue Protection features that largely protects farmers against severe losses but it is unlikely that farmers will achieve close to record-breaking income levels like the past few years.

Markets are often built around USDA reports such as the WASDE and other crop progress reports. The most recent WASDE was released on July 12th which showed some opportunities on the demand side of the balance sheet. Both corn and soybean ending stocks were lowered based on increases in forecasted demand greater than estimated production increases. Ending stocks represent the estimated production less demand/uses for a particular crop and the USDA is forecasting greater uses for 2023/2024 corn. On the other hand, both corn and soybean production are up from the June report which is based on acreage reporting and yield estimates. As the growing season continues, it is common for forecasted ending stocks to be adjusted as more acreage reports come in and crop yield estimates are tweaked. Some analysts believe the USDA’s production numbers may be overly ambitious however it is difficult to truly tell what average yields will be until we are well into harvest.

The next WASDE will be released on August 12th and this month will also kick off the Pro Farmer Crop Tour, a highly anticipated event for farmers across the Midwest. Scouts in Illinois, Indiana, Iowa, Minnesota, Nebraska, Ohio, and South Dakota report corn and soybean production estimates on 2,000+ different fields. The tour helps analysts refine yield estimates as it occurs after pollination. The USDA watches this tour closely when adjusting its own reports.

As we head into August and September, supply and demand estimates will continue to shore up and farmers will be gearing up for harvest time. Farmers in the South will likely be heading into corn and soybean harvest in August while the Midwest regions typically kick off harvest in early to mid-September. The sky above Champaign, IL is now full of crop dusters spraying fungicides as corn and soybeans begin pollination and Illinois farmers are itching to see how their crop compares to the rest of the country. Farmers are watching markets closely hoping for a reversal of the downward price trend that has been the story for much of 2024. Many farmers have chosen to pre-sell their crops before harvest; however, the less-than-ideal crop prices so far may have some farmers playing a bit of the waiting game. It’s too bad farmers don’t have the likes Billy Ray Valentine (Eddie Murphy) and Louis Winthorpe III (Dan Aykroyd) to do their hedging.

“Think big, think positive, never show any sign of weakness. Always go for the throat. Buy low, sell high. Fear? That’s the other guy’s problem. Nothing you have ever experienced will prepare you for the absolute carnage you are about to witness. Super Bowl, World Series – they don’t know what pressure is. In this building, it’s either kill or be killed. You make no friends in the pits, and you take no prisoners. One minute you’re up half a million in soybeans and the next, boom, your kids don’t go to college and they’ve repossessed your Bentley. Are you with me?” – Louis Winthorpe, Trading Places

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