USDA won’t issue its first official World Agricultural Supply & Demand Estimates (WASDE) for 2018 until May. But we’ve got some early guesstimates on acreage from respected sources and that’s all my “WASDE Wizard™” needs to show you likely price ranges for corn and soybeans under 3 possible scenarios for 2018 growing season weather.
Even with “average” weather and trend yields, there’s a lot more upside potential than downside risk for 2018 corn and bean prices!
USDA just released its December WASDE for 2017-18 on Tuesday and we’ve got early 2018 acreage forecasts from Informa Economics for corn and soybeans. That’s all I needed to dial in some key numbers for my “WASDE Wizard™” to forecast the likely range for USDA average farm prices in their January 2019 WASDE under 3 possible scenarios for 2018 growing season weather as shown below. (The algorithms incorporated into my model are rooted in the historical record of average changes in USDA farm price forecasts stemming from changes in crop size over the course of the growing season.)
As the Wizard shows, even under a scenario for excellent weather, the range for average farm price drops less than 20 cents because increased usage offsets part of the increased supply. Notice also that under sub-trend yields, the range for average farm price rises by just 33 cents because WASDE history shows lower use will mute the impact of a lower crop on ending stocks to varying degrees.
But what the Wizard also allows me to do is “short-circuit” the rationing function of the model and forecast what farm prices would be if no rationing occurred under a sub-trend yield and 2018-19 usage remained at the same level indicated for 2017-18 in Tuesday’s December WASDE: It would lower ending stocks to just a 49-day supply and, based on my algorithms rooted in WASDE history, generate a range for average farm price of $3.56 to $4.26! This range offers useful guidance as to how high prices might have to go BETWEEN May and January to cut usage by the 220 million bu. calculated above in the adverse weather scenario.
At current national average basis, you could add 20-25 cents for the “futures equivalent” of these farm price ranges. With today’s close for Dec 18 corn futures just $3.36, the “Wizard” shows a lot more upside potential than downside risk!
NOW LET’S SEE WHAT THE “WIZARD” SUGGESTS FOR 2018 SOYBEAN PRICES:
The first thing to note is that this year’s record national average soybean yield for 2018 is so strong that even under my usual procedure for estimating an “above trend” yield it’s still a 10th of a bushel LOWER than this year’s projected yield! Next, you’ll notice that even with average weather, the implied range for average farm price relying on past WASDE history is only a nickel below Tuesday’s forecast range for 2017-crop farm prices.
As in corn, it’s under the adverse weather and “sub-trend” yield scenario that things really get interesting when I short-circuit the Wizard’s price rationing function and just leave soybean usage at 2017 levels for 2018-19. In that case, the ending stocks dropped from a 32-day supply to just a 24-day supply and the implied range for average farm price in the January ’19 WASDE rose to somewhere between $10.43 and $11.83!
Add about 60 cents for national average soybean basis and the equivalent range for highs in futures BETWEEN May and January would run from $11 to $12+ to accomplish that 90 million bu. drop in usage required to tame the farm price range to levels shown.
As in corn, I “rest my case” (with help from the Wizard model) that today’s close for Nov. ’18 futures at $9.87 hints a lot more upside potential than downside risk!
Comments? Questions? Contact me. I’d love to hear from you!