As has been the case for 100 years now, the USDA held their outlook forum this past week in Washington DC. With news seemingly limited and the market stuck in the winter doldrums, focus on the forum and the numbers that came from it seemed greater this year than the last few.
With the increased attention there seems to be some confusion about how exactly the numbers released were put together or what they mean as we look ahead.
The projections released this past week are based entirely on economics and historical tendencies. And while a decade worth of projections were released, most traders feel the 2024 outlook is the only one worth spending any time on.
As is the case with any USDA figures released, some find it their duty to claim the data is worthless due to its likelihood to change in the year ahead. Looking back over the forum data versus final figures it is easy to see why folks would say that with some major misses witnessed over the years.
However, if one uses the data as it is intended, which is a baseline for what *should* happen if developments in supply and demand were to take place in a vacuum void of influence from weather or human emotion, driven only by money.
Of course, as we all know, the markets are not void of weather or human emotion, opening them up to massive potential changes from initial thoughts. Because of this I wanted to look back over the years, comparing what the forum figures said, how they changed as we moved into the initial May projections and where numbers ended when all was said and done.
Going over the figures, it is easy to see some pretty memorable swings from where we started to where we ended. The pure size of the country’s corn crop and demand sector leaves it open to the biggest misses, though the USDA seems evenly split when it comes to over or under projecting where we will stand at the end of each marketing year.
Looking back to 2013, the USDA forum figures were above final corn carryout 5 out of 11 years, overestimating ending stocks by around 285 million bushels on average. We have seen ending stocks come in lower than initial forum projections 6 times over the last 11 years, averaging close to 600 million bushels. Major misses in 2013, 2020 and 2022 from initial ideas to actual ending stocks were behind the higher average.
A 937 million bushel miss was seen in 2013, driven by lower production than expected and much better demand. Similar situations were seen in 2020 and 2022, with a 1.4 billion bushel miss in ’20 and a 604 million bushel miss in ’22.
Looking at the soybean numbers over the years were interesting, mostly because they said absolutely nothing at all. The USDA has come in higher in their initial outlook than where we ended the marketing year 5 out of the last 11 years, with the average miss coming in around 150 million bushels. In 6 out of the last 11 years we have seen final ending stocks come in lower than initially expected by just over 100 million bushels on average.
The biggest miss in soybeans was seen in 2018, driven by a surprising drop in demand due to the trade war. We saw a large drop in ending stocks from initial projections in 2015 though, on the back of lower production and much higher demand.
Wheat figures tend to end higher than initial projections from the USDA, coming in above forum figures at the end of the year 7 out of 11 years. From an overall standpoint, the USDA does miss in their wheat outlook though, with their largest discrepancies coming in surprisingly low for the size of overall crop and its demand. The fact winter wheat is responsible for the bulk of the country’s wheat production is behind much of that, with a planted acreage survey released in January providing timely insight.
Keeping all of this in mind, we now look forward to the March planted acreage survey that will be released at the end of the month. The acreage survey is much like it sounds, a summary of farmer planting intentions, after a survey is sent to the nation’s farmers starting the first of March. The data is compiled by the USDA’s National Agricultural Statistical Services group, with farmer responses combined with historical tendencies providing us with an acreage outlook based in reality.
In May we will then get our first initial new crop supply and demand outlook. This outlook will look much like the forum numbers released, with updates to acreage as changes from forum figures to March planting intentions almost always guaranteed. Any necessary changes in projected beginning stocks, and occasionally some changes in the demand outlook provide us with a more polished projection of what the year ahead would look like, again, if life were to happen in a vacuum.
Looking back at the historical accuracy of May projections versus final, it is interesting to see there is a strong tendency for final ending stocks to come in higher than expected for both wheat and soybeans. In 8 out of 11 years, the USDA has underestimated ending stocks for the two in their initial outlook, coming in remarkably close though, with the average miss only around 65 million bushels for both.
In corn, their track record says to flip a coin, with ending stocks coming in higher 6 times, and lower 5. In many cases the misses in corn were driven by production swings, and the subsequent misses in demand that came as a result.
In the end, the outlook numbers provide us with nothing more than a starting point for what the year ahead could look like, if money were the only driver. The marketing year will likely look very different from the current projections, with moves in the cash market providing us an ability to reconcile estimates versus actuals throughout the year.
Other Things I Am Watching This Week
- China returns this week. While I haven’t had a chance to dive in too far, initial numbers from the Lunar New Year look promising. At first glance, travel and consumer spending looks like it came in better than expected. This is hopefully a sign we will see some continued recovery in sentiment and increases in spending.
Improved trader psychology and better margins like we are seeing for private soybean crushers in April could drive an uptick in buying interest in the week ahead. Something that is needed, even if Brazil is likely to pick up most if not all the business.
- South American weather and cash markets. Improved domestic demand and slow farmer selling has firmed basis levels in Brazil recently. Questions over crop size continue to circulate with some worries a return to dryness could trim the Argentina outlook a touch further, though heat isn’t expected to be an issue. Safrinha corn acres in Brazil continue to be debated, though it appears the cut to plantings won’t be as great as thought at the end of 2023.
- Outside market moves and trader sentiment. Do we see a transition out of equities or cash back into commodities now that they have become cheap compared to the last couple of years? What will it take to push speculators to cover their shorts? Outside market sentiment and what speculators do will have tremendous influence on price direction though calls for short covering have been heard for weeks now to no avail.
In the end, the return of physical traders to the desk this week will provide great insight. As always, let me know if you have any questions. Have a great week!
On the date of publication, Angie Setzer did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
