WASDE WIZARD ® Perspective on September WASDE Numbers:
Why a second MFP payment to soybean producers will depend more on political calculations than actual economic impact of lost exports.
For soybeans, WASDE changes make 2nd USDA grower payment unlikely. The Market Facilitation Program (MFP) announced last month featured a potential government payment of $1.65 per bu. as compensation for lost exports to China over tariff disputes. However, the initial payment will be on just half of grower production, with no guarantee a second payment would be made. It will likely be more a political decision than sound economics. Here’s why: I dialed two alternative yield scenarios for beans going forward into the WASDE Wizard model; one about a bushel below Wednesday’s figure, the other a bushel higher. The likely impacts on USDA’s farm price forecasts are quite minor either way.
In Fig. 1, I adjust USDA’s range for soybean farm prices to “futures equivalent” by adjusting for current national average basis of 76 cents under November futures. Despite yield and ending stocks figures above avg. estimates, November closed at $8.40, 8 cents higher but still deep into the “lower third” of likely price range under all 3 scenarios.
FIGURE 1: Futures equivalents for soybeans using SEPTEMBER WASDE export forecast
Back in June, before the tariff spat arose, USDA pegged 2018-19 average yield at 48.5 bu. per acre, exports at 2.290 billion bushels and the midpoint of its farm price range at $10 per bushel. Today the average yield is estimated at 52.8 bu. per acre, exports at 2.060 billion bu. and the midpoint of the farm price range at $8.60, off $1.40 from June. How much of that decline is due to the reduced exports alone? To find the answer, I dialed in the June export estimate and left all the other variables in the model unchanged. Result below:
FIGURE 2: Futures equivalents for soybeans using JUNE WASDE export forecast
Adding back the “lost” export potential for beans adds only 43 cents per bushel to the average farm price using the Wizard algorithms based on WASDE history. Thus, getting the MFP rate of $1.65 per bu. on half their production is still nearly 83 cents per bu. on the entire crop. It more than compensates for price loss tied to lost export potential. The rest is from a much bigger soybean crop than was forecast in June. Another payment will be largely a political calculation, not one based in economic analysis alone.
TURNING NOW TO SEPTEMBER WASDE FOR CORN:
U.S. avg. corn yield of 181.3 bu./acre blew the lid off pre-report estimates ranging from 174 bu./acre to 180. Projected ending stocks of 1.774 billion were at the high end of pre-report trade expectations ranging from 1.210 billion to 1.785 billion. Futures tanked, yet USDA’s projected range for average farm price was trimmed just 10 cents per bu., to somewhere between $3.00 and $4.00 vs $3.10 to $4.10 last month. Why so little? Two reasons: First, in spite of all the concern over trade spats, the U.S. export outlook for corn has actually gone up by 300 million bu. since the June WASDE thanks to short crops in South America. Second, global coarse grain usage was raised enough in Wednesday’s WASDE to keep the global stocks:use ratio virtually unchanged from last month at about a 48-day supply.
WASDE WIZARD® forecasting model: Futures already nearing full discount. I created two yield scenarios going forward; one assuming poor harvest conditions that trims avg. yield almost a bushel per acre and another assuming ideal harvest weather and one more bump in yield by almost a bushel per acre. Either way, the price impact is minimal at this point. More important is what you see in Fig. 3 below using “futures equivalents” of USDA farm price forecasts with national average corn basis at 38 cents under December futures:
FIGURE 3: Shocking corn yield already nearly fully discounted
Closing at $3.52 Wednesday, December futures were already within 14 cents of the low end of the Wizard model’s “futures equivalent” for USDA’s farm price forecast. That puts it well into the “lower third” of the price range where buyers have more incentive to start covering needs than sellers have any incentive to price more corn.