WASDE recap for September 2022: Production news dominates the day
On Monday, September 12, the USDA released its latest World Agricultural Supply and Demand Estimates, or WASDE. The WASDE report provides an updated benchmark for agricultural commodity price expectations. This article discusses the USDA’s changes to its new crop U.S. corn and soybean balance sheets and two things to watch going forward: the reaction of South American production to below-trend U.S. yields and to high commodity prices.
Current USDA New Crop Supply and Demand Estimates
The USDA lowered the expected 2022 corn and soybean production. The observed production changes were the largest since the release of initial new crop supply estimates in May of this year. Harvested areas and yield estimates were both lower than previously projected levels. This was somewhat unusual in that the National Agricultural Statistics Service chose to release updated acreage estimates in September rather than October, as it considered data from other agencies to be complete enough to TO DO. What this implies for further adjustments to 2022 area estimates is unclear.
Table 1 shows the changes in the US 2022/23 new crop balance sheets for corn and soybeans between the August and September WASDE reports. For corn, projected U.S. production for 2022 is reduced by 415 million bushels to 13,944 million bushels. Harvested area and yield decreased by 1.2% and 1.7% respectively. Thus, area and yield adjustments were about equally responsible for changes in estimated maize production.
For soybeans, production forecast for 2022 is lowered from 153 million bushels to 4,378 million bushels. Harvested area is expected to be 600,000 acres lower, or 0.6% less than expected. The most significant changes for soybean production relate to yield. After increasing forecasted soybean yields in the August report, the USDA significantly reduced its yield forecast by 2.7%, from 51.9 bushels/acre to 50.5 bushels/acre. Unlike corn yield changes, which were widely anticipated by trade prior to the report, soybean yield declines were unexpected and soybean prices moved significantly during the initial reaction period after the report.
The USDA has offset some of the balance sheet tightening related to lower production by making round cuts in the planned use of corn and soybeans. Domestic use of corn in the United States for animal feed was reduced by 100 million bushels, ethanol was reduced by 50 million bushels, and exports fell by 100 million bushels. The combined decline of 250 million bushels in expected corn usage was less than the drop in production, so ending stocks were lower. The maize stocks-to-use ratio fell from 9.6% to 8.5%, tipping the market situation into a historically tight availability situation.
For soybeans, exports accounted for most of the reduction in usage, down 70 million bushels from the previous month. Domestic use was reduced by 20 million bushels. Closing stocks have fallen to 200 million bushels, so the ending stocks to be used of the new crop are just 4.5%, signaling a further shortage in what was already a balance between supply and extremely tight demand.
Will South American production take over?
With US corn and soybean production and yield below long-term trend levels and high prices, other global producing regions have strong incentives to increase production. Historical experience suggests that such behavior is typical. For corn and soybeans, South American production often plays this balancing role. Figures 1 and 2 show deviations from long-term production trends for corn and soybeans in the United States and Brazil from 2011/12 through the current 2022/23 marketing year. When production is below the long-term trend in the United States, Brazilian production often compensates: negative values for the United States correspond to positive values for Brazil. This is particularly the case for corn and true in recent years for soybeans. Recent analysis suggests that Brazil will harvest corn and soybean crops in the 2022/23 marketing year (see: daily farmdoc August 29, 2022) Of course, this projection is dependent on favorable growing conditions, so market watchers will be watching the weather in South America closely in the coming months.
The September WASDE report made substantial changes to US corn and soybean production estimates for the 2022/23 new crop. Changes in area and yield have resulted in lower production. Soybean yield saw the largest and most unexpected change with yield projections reduced by 2.7% from the previous August forecast. The USDA has offset some potential tightening in corn and soybean balance sheets by also adjusting downward all utilization projections.
The September WASDE figures will need to be reconciled with the resumption of export sales data releases later this week and the implied commodity usage shown in the September grain stocks report to be released on September 30. It remains to be seen whether the corn and soybean harvested area numbers can be considered strong, since these numbers are usually adjusted in the October WASDE report, as noted above. While further adjustments to new crop balance sheets are likely, the reality of a below-average US corn and soybean crop in 2022/23 is setting in.