As an ag economist, I’ve worked for four of the biggest ag market consulting firms in the world through my career. But the two-fold task never changed much; summed up as:
1. Help sellers keep sales to the top third of the yearly price range.
2. Help buyers limit purchases to the lower third of the yearly range.
The tough part, of course, was knowing what that range would be! After all, the most likely price range for corn, soybeans and wheat is a moving target; shifting at the whims of Mother Nature and each new release of the most market-sensitive report USDA puts out: Its monthly World Agricultural Supply & Demand Estimates known as the “WASDE report”.
In fact, the WASDE is so market sensitive that each month, various ag newswires poll a dozen or more private market consulting firms for their “pre-report expectations” of crop size and ending stocks a few days ahead of release. These trade “guesstimates” then virtually DICTATE how futures will react within seconds of a new WASDE release.
Then, the very next day, the speculation will commence on what the next WASDE might show for yield. Trouble is, a yield change is just the “trigger” for a chain reaction that unfolds through a WASDE balance sheet as follows:
The change in yield (supply) prospects affects market prices.
The change in market prices affects usage (demand) prospects.
The net effect of those changes affect the ending stocks/use ratio.
A change in the stocks/use ratio affects USDA’s farm price outlook.
As an analyst, I always wished there were some wizardry I could work to quickly and accurately generate the likely “chain reaction” to an array of possible yield changes. Then one day I had an epiphany! I had 30 years’ worth of WASDE data; crop by crop, line by line, month by month, year by year! Maybe it could make ME “the wizard”!
Well, it took months and months of tweaking and back-testing, but I have developed five separate tools to keep clients a step ahead of coming changes in USDA’s farm price forecasts for corn, soybeans, and three different classes of wheat!
I call it my WASDE WIZARD TOOLBOX. Here is the list of tools:
Price Impact Calculator: Automatically calculates the likely impact of any change in yield on USDA’s likely adjustment to its forecasts for average farm price – if you’re close to right about the yield change. (Can also be used to generate likely average farm prices for the next crop year under three alternative growing season weather scenarios.)
Farm Price Localizer: Lets user substitute a local basis for the national average basis assumed in USDA’s farm price forecasts and thus “localize” USDA’s farm price forecast to user’s area. (This tool also automatically calculates the threshold for entering the top third or bottom third of the forecast range for farm price at the local level).
Farm price to Futures Converter: Lets user enter the national average basis on any given day and “convert” USDA’s farm price range to a range for the spot futures contract. (This also automatically calculates the threshold for entering the top third or lower third of the range – but for futures.)
Price Target “Reality Checker”: Essentially runs the Price Impact Calculator in reverse, letting you plug in a desired price, then see the change in yield required to reasonably expect that price.
Pre-Season “Acreage Range Meter”: Lets user enter beginning stocks, a yield estimate and the desired average farm price for the coming crop year. This tool instantly calculates the maximum acreage that could reasonably produce that price if higher than last year, and also the minimum acreage required if the desired price is lower than last year.
You can find a demonstration of how all five of these new decision tools work at www.perfectfitpresentations.com.
If you have any questions, comments or interest in utilizing the WASDE Wizard tools in your own business, please contact me at: Dan@perfectfitpresentations.com.
Perfect Fit Presentations, LLC