January 18, 2022
Joe Lardy, market intelligence and insights analyst with CHS, discusses the latest WASDE, U.S. crop production and quarterly stocks reports from the USDA.
When the USDA releases its reports, market volatility often follows. However, the recently released World Agricultural Supply and Demand Estimates (WASDE), U.S. Crop Production and Quarterly Stocks reports should provide a welcome level of stability to begin 2022.
“Normally, in the January WASDE report we get a big curveball and we spend most of the day it’s released trying to find out what happened and why the USDA gave us those numbers,” says Joe Lardy, a CHS market intelligence and insights analyst. “And in past stocks reports, sometimes we’ve seen discrepancies of 200 to 300 million bushels. This time around, that didn’t happen, so we’re not wondering about prices in the futures markets and where things should be or what they could be. Things turned out how we expected, so we can trade our fundamental markets again.”
Big reductions in South American production
Although the reports were more predictable than usual, there were a few surprises in South American crop production numbers.
“Normally, we’d see the USDA take an approach that’s incremental and make small reductions along the way in crop production predictions. In this WASDE report, the USDA was incredibly aggressive in its reductions,” says Lardy. “The report took 9.5 million metric tons of soybean production out of Brazil, Argentina and Paraguay and 3.5 million metric tons of corn production out of both Brazil and Argentina.”
What makes that action atypical, says Lardy, is that CONAB, the Brazilian government’s food supply and statistics agency, reported higher levels of production than the USDA outlined. The USDA WASDE reports typically have a more bullish view of South American production.
“The USDA was incredibly aggressive in its reductions and actually has a lower estimate than CONAB on the soybean side,” explains Lardy. “That was an interesting move by the USDA, but I think it highlights just how dire the situation in South America is — there are some really strong production cuts down there.”
Another surprise was the rise in reported U.S. wheat acres. “Total wheat acres were just a little bit above expectations and I think that shows wheat is going to be in the acreage battle this spring for many farmers,” says Lardy.
Predictability should boost farmer confidence
Overall, Lardy says recent USDA reports should provide some confidence in crop prices and set a benchmark for planning.
“Without any big surprises hanging over our heads, such as potentially extra, unaccounted-for bushels in the market, we have known variables. Now we can trade weather, the South American crop production situation or any export activity that comes in,” says Lardy. “That helps producers because they can look at all of those variables and prices and make more informed planting decisions.”
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