BY: Joseph Glauber, IFPRI

The grains and oilseeds futures markets were down significantly following the release of USDA's August Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports.

The August reports are significant because they provide the first objective yield estimates for spring planted crops in the U.S. such as corn and soybeans. Before August, USDA forecast yields based on trend models; in August, people get out in the fields and actually count corn ears and the number of corn and soybean plants in sample plots. Those estimates are preliminary, of course, and will change over the course of the next few months (the USDA conducts monthly samples), but the August estimates almost always make news and they did last week in a big way.

Analysts surveyed by Reuters had expected the USDA to lower its yield and production forecasts for both crops following excessive rains in spring and early summer. Instead, the USDA corn yield estimate at 168.8 bushels per acre, up from the previous model-driven estimate of 166.8, and the second highest on record, if realized. USDA projected the soybean yield at 46.9 bushels per acre, up from the July estimate of 46 bushels per acre.

If realized, the US corn crop will be 13.686 billion bushels, the third-largest crop on record. The soybean crops projected at 3.916 billion bushels, only 1 percent below last year's record crop.

New crop soybeans fell over 61 cents to $9.10 per bushel. New crop corn fell almost 20 cents to $3.68 per bushel. The other big news pressuring soybeans was the announcement of that China would allow further depreciation in its currency. China accounts over two-thirds of the world's soybean imports. A further appreciation in the US dollar could potentially weaken China imports of US soybeans.

The USDA projects global wheat supplies to be at record levels this year. Drought in western Canada has lowered yield prospects there, but the yield improvements in Russia and Ukraine will more than offset losses in North America. Wheat uses continues to be strong, but production will outstrip world consumption for the third straight year, leading to a projected record level of wheat stocks. Expressed in terms of global consumption, global wheat ending are projected to be equal to 113 days of use, up from 109 days of use last year and the highest level since 2009.

These new crop forecasts underlie what we have seen in market prices. The FAO food price index released for this month showed prices at their lowest levels since September 2009.

Latest WASDE Report (USDA): http://www.usda.gov/oce/commodity/wasde/latest.pdf
Latest Food Price Index (FAO): http://www.fao.org/worldfoodsituation/foodpricesindex/en/

Joseph Glauber is a Senior Research Fellow at the <a href="http://www.ifpri.org>International Food Policy Research Institute (IFPRI) in Washington, DC. Prior to joining IFPRI, Glauber served as Chief Economist for the U.S. Department of Agriculture, where he was responsible for the Department’s agricultural forecasts and projections, oversaw climate, energy and regulatory issues, and served as Chairman of the Board of Directors of the Federal Crop Insurance Corporation.

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