WASDE WIZARD® Update for Corn and Soybean Outlook
WASDE WIZARD ® Update for Corn and Soybean Outlook:
The path of least resistance through summer is lower prices.
USDA’s first “official” 2018-19 Supply/Demand estimates held few surprises compared to pre-report expectations. Ending stocks for both corn and soybeans will decline under USDA’s trendline yield assumptions; but remain large enough to hold season average farm prices to only about 40 cents per bu. higher than 2017-18 for corn; just 65 cents per bu. higher for soybeans. Globally, corn and soybean stocks will decline as well, but are best described as a “declining surplus”; still far from a “developing shortage.” (That will require adverse 2018 growing season weather not currently in the cards according to long-term weather forecasts.)
FIGURE 1 is the WIZARD forecasting model’s latest range of season average corn prices under two other scenarios: “adverse” or “ideal” summer weather going forward. Should weather prove unusually good, with above-trend yields, the Wizard model predicts it will shave about 27 cents off the midpoint of USDA’s May 10th WASDE price forecast. Should it turn adverse enough to pull yield a bit below trend, it would add about 47 cents to USDA’s May WASDE midpoint.
NOTE: USDA’s May 10 WASDE range for 2017-18 was only a 30-cent range, from $3.25-$3.55, with a midpoint of $3.40. But when first issued in May of last year, the range was 80 cents because growing season weather was unknown. The Wizard algorithms require a similar range for 2017-18 to generate 2018-19 ranges for the same reason; unknown weather. (The midpoint remains the same as USDA’s.)
FIGURE 2 is the WIZARD model’s latest range of season average soybean prices under either adverse or ideal summer weather going forward. Should weather prove unusually good, with above-trend yields, the Wizard model predicts it will shave about 27 cents off the midpoint of USDA’s May WASDE forecast of $10 per bushel. Should it turn adverse enough to pull yield a bit below trend, it would add about 63 cents to USDA’s May WASDE midpoint.
NOTE: USDA’s May 10 WASDE report pegged 2017-18 average farm price at $9.35, dropping the “range.” Its first balance sheet for 2018-19 however, puts season average farm price within a $2.50 range because so much hinges on this summer’s weather. The Wizard algorithms require a similar range for 2017-18 to generate 2018-19 forecasts under different weather scenarios.
To convert farm price ranges to futures equivalents, I adjust for national basis. Currently national average cash corn prices are running 24 cents under spot futures; cash soybeans 47 cents under. So, by adding those figures to the farm price ranges, I can produce a set of “futures equivalent” price range “windows” under all 3 weather scenarios in FIGS. 3 & 4 :
FIGURE 3: Three Scenario Corn Outlook
FIGURE 4: Three Scenario Soybean Outlook
WIZARD assessment of where corn futures are currently, vs “potential” season avg. price:
* Right in the middle of the “normal” weather scenario and trend yields.
* In the top third of “ideal weather” scenario with above-trend yields.
* Not even in the low end of price potential under adverse weather and sub-trend yields.
WIZARD assessment of where bean futures are currently, vs “potential” season avg price:
* Just barely in the lower half of the range under normal weather and trend yields.
* Just barely in the upper half of the range under ideal weather and above-trend yields.
* Just barely in the range at all should weather turn adverse with sub-trend yields.
Weather scenario most likely? My bet is on “normal” to “ideal”. The latest June-August temp and precipitation forecast maps from NOAA’s Climate Prediction Center show the vast majority of the central U.S. likely to have average temps and average to above-average precipitation. Further, subsoil moisture reserves indicated by the latest Palmer Drought Index in FIGURE 5 shows normal to above-normal from the central Plains to the east coast.
SUMMARY CONCLUSION AT THIS TIME: RALLIES SHOULD BE SOLD.
Actual season average futures prices will come in somewhere between the high end of the windows outlined in yellow and the low end of the windows outlined in green in FIGS. 3 & 4 for corn and soybeans. Note in both cases the upper half of the “normal” weather range still overlaps the mid- to upper-half of the range under adverse weather; all the more reason rallies from current price levels should be sold; while buyers have good cause to be patient and await lower prices as the season unfolds. (Remember as well that both USDA and WASDE Wizard ® ranges are for season average price, not the range from “season high” to “season low”; a critical distinction.)
NOTE: The next Bare Knuckles Ag WASDE Wizard ® update will follow USDA’s June 29 Planted Acreage Report when we see how well actual plantings lined up with March Prospective Plantings. By then, we’ll also have an early trend in weekly crop condition ratings to see if the Wizard Outlook is veering more strongly either side of a “normal” growing season. Between now and then, however, there will likely be need for a “Bare Knuckles Ag” assessment of progress on a new farm bill (or lack thereof).
Dan Manternach, President
Perfect Fit Presentations, LLC
Copyright © 2018, ALL RIGHTS RESERVED