Episode 20: Reactions to USDA & FSA August Update

Rodney and Gabe talk through the USDA's "bearish" August WASDE report and new acreage planted estimates from FSA.

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TRANSCRIPT

Rodney: Big report, we've been talking about it for a while now. Mostly just hoping we would see some positive news out of it. That's the only reason I cared about this report. Had we had an envelope, what would you have guessed? A neutral bearish?

Gabe: I would not have had a higher yield number. I'm not saying I would've gotten there. I think I would have been around it mostly. I didn't have a strong feel outside of the gate, the range.

Rodney: Yeah. I don't think so. The crop, it seemed like the crop was getting bigger so I think we all would've guessed that it was bigger than it was back in July. I would have probably guessed the average trade guess of a 180.4. I'm kind of in the market knows camp.

Gabe: I'm impressed that you're down to tenths of bushels. I feel like I would have guessed either 180 or 181, probably 180. 180 is nice and round. It's a mentally convenient number.

Rodney: Gabe, if you're going to be confident, be confident to the second decimal, for sure.

Gabe: 180.44 actually for Rodney.

Rodney: You know I'm a detail oriented guy that loves the minutia for sure. Yeah. Report came in actually a pretty bearish report on its own. Average trade estimate was 180.4, just so you know. USDA came in at 181.8 and then we switched to soybeans, which actually might've been the bigger story out of the whole thing. Average trade guess was 51.3, came in at 53.3. Two bushel on beans is a pretty big deal.

Gabe: That is, yeah.

Rodney: Man, a guy that doesn't know anything about grain markets, what does that tell you the market should have done?

Gabe: Well, it should have gone down.

Rodney: Yeah, it didn't. But actually the report itself didn't have that much of an effect on the market. I think we were up a few on corn. I think the market was just sick of being bearish.

Gabe: Well and there's also, wasn't the data set used to generate this report more limited than normal?

Rodney: Yeah. And I think we said coming into this report that we felt like it was going to be much more believable than last year because last year, we didn't get everything in well.

Gabe: The planting timing. Yeah.

Rodney: Come to find out though, there's some rumors that maybe we don't have all the acres in here already. They think acres could be way off for some reason and then had a minor storm roll through the Midwest in between when we captured this data and when we reported it. I don't know. I think it's one of these things where we had the report, the market reacted positive to it and on really non positive numbers. I guess the other thing that came out in that report is really they're looking for higher demand for both corn and beans. Demand gobbled up a lot of, if not all of, the extra supply that they were predicting there.

Gabe: Yeah. Although they've also been overstating demand more recently, in the past.

Rodney: Yeah man. Yeah, you look at those numbers and it's like, we're not meeting the numbers that they're anticipating. I'm a little hesitant to think that demand's going to be quite as strong as they're saying.

Gabe: We got those updated yield numbers, but I think it's also worth calling out the acres. We saw some pretty big updates to that side of the formula. And so I think on corn, they what? Moved it to 81 million acres in terms of planted acreage.

Rodney: Yeah. That's FSA's number that was released later that day.

Gabe: Which is four million below last year and the year before. Soybeans are at 75, call it 76 million, which is a little bit more than last year, but way lower than 2018. And so those are some pretty big changes as well. It's not really clear to us anyway, what drove yesterday's rally. And we saw some of that given back today. And so I think, yeah, there's some stuff to watch. Obviously some folks are wondering if it's taken that long for the market to digest whether or not it's gotten hit. How big the hit has been from the storms and so is it coming from that? Is it digesting what acres did get planted if for some reason they're hurting that yield number more than the USDA is putting out. I think there's some unknowns there and it's really unclear what were the specific causes of yesterday's move other than just deeper digestion of market prices. And to be clear yesterday was for us, Thursday the 13th. And so we saw corn up a little over a dime and soybeans up almost 20. Is that right?

Rodney: Yeah. Yeah. A lot of it just has to be that people don't necessarily buy the numbers they're getting. I just looked back, the estimates for corn acres this year, so back in the planting intentions report on March 30th was for 91 million acres of corn. Somehow, what I would call a near perfect planting season, for most parts of the country I would think, that's showing that roughly 10 million acres of corn didn't get planted. I know the price was low. I think a lot of people just sit there and say, "Hey, I'm not sure I believe that number regardless with the yield adjustment and the lowered acres, that total production for both corn and beans was definitely on the high end of that estimate."

Rodney: The report on its own, neutral to bearish more than anything. I think the market just sat back. Sometimes it takes a while for people to do the math. To say, "Hey, this is where this report came out." Now that's dated material, by the time it gets in the farmer hands, it's 14 days old or whatever. And then combine that with some huge storms that met in their backyard, some really compelling stories on Twitter and Facebook that for me are the equivalent of showing children in trouble. If you want to make me do something, you show kids having a problem and I think that's the reaction of a lot of these guys that can make that corn market really rally.

Gabe: Yeah. Yeah. I think that's right. And then today ended up being slightly drifting back lower by the end of the day.

Rodney: Can't say enough. Put a plan in place, let the market execute your plan. Because it is hard to make a decision. I talked to a lot of bullish, bullish gentlemen yesterday and it's just bullish is fun. I love being bullish, but boy, you want a trigger to help you know when to pull the trigger.

Gabe: Yeah. Trying to pick the high, I hear that's hard to do.

Rodney: Yeah. Right. Hey, thanks everyone for tuning into the Grain Waves podcast where Gabe and I bring real time analysis of grain marketing decisions directly to you. If you're new to the podcast, remember to subscribe and leave a five star rating and share with your friends and family. Thanks for listening.

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