Friday WASDE hints trade spat “hangover” to cost soy producers .68/bu. on 2019 crop.
It was mostly a grim picture for the corn, wheat and soybean outlook in USDA’s first look at the supply/demand balance sheets for 2019 crops in its monthly World Agricultural Supply & Demand Estimates on Friday. WASDE ending stocks forecasts exceeded pre-report trade estimates for all three crops at both the U.S. and global level. For this column, I’m focused on soybeans … with good reason.
I’ve plugged USDA’s initial 2019-20 supply/demand data for soybeans under average weather and trend yields into my WASDE Wizard ® forecasting model. As you see, the model also calculates likely changes in those numbers under two alternate scenarios for the 2019 growing season; a sub-trend yield under adverse weather and an above-trend yield with excellent weather. The exception is average farm price. As shown, my Wizard model, driven by algorithms rooted in WASDE history, says the smaller crop, higher usage and tightening stocks USDA is forecasting for 2019-20 should have been accompanied by an average farm price of $8.78, 23 cents higher than the $8.55 estimate for 2018 beans. Instead, USDA’s average farm price forecast on Friday was actually just $8.10 per bushel, 45 cents lower than for 2018. That 68 cent/bu. difference is the “hangover effect” of last year’s trade spat on USDA’s 2019 outlook.
Do the math and blame for USDA’s lower price forecast is rooted solidly in last year’s leftovers. As you can see above, USDA is not only forecasting a 394 million bu. drop in 2019 soybean production, but a 191 million bu. increase in usage, a whopping 588 million bu. combined. Yet, 2019-20 ending stocks drop a piddling 25 million bushels. Why? A breathtaking 557 million bu. jump in beginning stocks is the net result of a record 2018 crop and 354 million bu. drop in 2018-19 exports. We’re in a supply-driven bear market, where prices MUST drop to stimulate the higher usage USDA is forecasting for 2019-20.
So now, with U.S.-China talks suddenly breaking down again, the Trump administration is hinting an encore of last year’s “Market Facilitation Program” that paid soybean farmers $1.65 per bu. on 2018 production as compensation for lower prices from lost exports. They haven’t said how much a 2019-crop payment might be; but the Wizard model calculates the “hangover” cost to farmers implied in Friday’s WASDE report at 68 cents per bu. given current acreage forecasts and trend yields for 2019.
Dan Manternach, President
Perfect Fit Presentations, LLC
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