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What the WASDE · Professional Ag Marketing Podcast

• 0:01
  SPEAKER_00: Welcome to the Professional Ag Marketing Podcast.
• 0:04
  SPEAKER_00: If you want a deep dive into the ag markets and risk management strategies, your search is over.
• 0:10
  SPEAKER_00: Come here after every Friday to get your weekly commodity recap.
• 0:14
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:21
  SPEAKER_00: This is your host, Mike Minor.
• 0:22
  SPEAKER_00: Let's get started.
• 0:24
  SPEAKER_00: Today is August 13th.
• 0:25
  SPEAKER_00: I've got Lucas Peters with us today.
• 0:27
  SPEAKER_00: We're going to talk about the Wazday Report yesterday.
• 0:30
  SPEAKER_00: How's that sound?
• 0:30
  SPEAKER_00: That sounds exciting, Mike.
• 0:32
  SPEAKER_00: Awesome.
• 0:33
  SPEAKER_00: Well, let's get started.
• 0:34
  SPEAKER_00: WASDAY Report came out yesterday, lived up to the hype for the most part, wouldn't you say, Lucas?
• 0:40
  SPEAKER_01: Yeah, you know, it's always billed as one of the biggest uh reports of the year.
• 0:44
  SPEAKER_01: I know you kind of think that May report is is pretty important too.
• 0:48
  SPEAKER_01: I've always thought the January report's pretty uh one of the biggest market mover days, and and it moved a lot.
• 0:55
  SPEAKER_01: Um It just uh well then to today happened and it kind of really didn't do anything.
• 1:01
  SPEAKER_01: So it wasn't a lasting uh movement.
• 1:04
  SPEAKER_00: No, I was wondering if that would happen.
• 1:06
  SPEAKER_00: The the sell-off going into it a little bit on the grains, and then we had this report that was bullish versus expectations, but not necessarily bullish versus price.
• 1:17
  SPEAKER_00: And that's kind of how I like to look at it, I guess.
• 1:20
  SPEAKER_00: So we saw an initial reaction that fought us to the top end of the range a little bit, uh, got to some key resistance levels, and now today they kind of took an early weekend and and they're soaring into that, I guess.
• 1:32
  SPEAKER_01: Yep, and that's you know, I I think you know, just looking through Twitter and talking to a few people about the the January WASDI, like there's stuff in there for the bulls to feed on, there's stuff in there for the bears.
• 1:43
  SPEAKER_01: There was a little something for everybody uh in the January WASD, so that's why you kind of saw the the breakout action yesterday and then today, three-day weekends like okay, let's just take our stuff and go home.
• 1:56
  SPEAKER_00: Well, they're gonna have to absorb it.
• 1:58
  SPEAKER_00: And uh the interesting thing is a lot of the time when these WASD airports come out, they change like one or two things on each balance sheet.
• 2:05
  SPEAKER_00: This it was like every single line item on the corn balance sheet changed, and then like half the ones on the soybeans US balance sheet changed.
• 2:13
  SPEAKER_00: So it was a lot of different moving parts, and people it it took a while to just chew through all of the data and all of the changes and see what really happened.
• 2:24
  SPEAKER_01: So when you think of I I guess this report definitely seemed uh maybe more corn uh as far as grabbing the headlines, right?
• 2:34
  SPEAKER_01: And the two standouts there, of course, uh are acre reduction and or harvested acre reduction, and then the export number are the two things that stood out to me.
• 2:46
  SPEAKER_01: Is that kind of what you're thinking are the big headliners?
• 2:50
  SPEAKER_00: And going into it, the big things were supposed to be demand destruction on corn and then the Argentina production on soybeans, basically.
• 2:59
  SPEAKER_00: And I mean that lived up to it, but the the unforeseen change was for sure the uh lowering of the harvested acres.
• 3:07
  SPEAKER_00: And to put that into perspective, so let's talk about that a little bit.
• 3:10
  SPEAKER_00: So they lowered the corn production for the 22-23 crop by 200 million bushels, and uh they had a reduced acre amount of about 1.6 million acres from the last estimate, and that really shook the markets.
• 3:26
  SPEAKER_00: Um what happened was we really haven't seen that big of a reduction since 2002.
• 3:32
  SPEAKER_00: We had a 1.2 million acre reduction that year, which was a western drought year as well, so a little bit of correlation there with those two changes, and they saw it in a 1998 as well.
• 3:43
  SPEAKER_00: So a couple of years that were similar, but normally we see it change by about 200,000 acres average is all.
• 3:51
  SPEAKER_00: So not not a lot.
• 3:52
  SPEAKER_00: And the thing that's frustrating a lot of people here, I think that you could touch on, Lucas, is the timing of it.
• 3:58
  SPEAKER_00: So you want to talk about like uh the timing of them changing it in this report?
• 4:02
  SPEAKER_01: Yeah, and and so you're probably like they're I would guess they're pulling data from other government sources to for as their reason for reducing acres, right?
• 4:12
  SPEAKER_01: Like and so when you say other government sources, it's uh RMA crop insurance data, it's FSA data.
• 4:20
  SPEAKER_01: Um and and of course those acres were lost because the the acres where they reduced were in the drought areas.
• 4:28
  SPEAKER_01: In the west.
• 4:28
  SPEAKER_01: Yep, in the west.
• 4:29
  SPEAKER_01: So you you had significant drought, you had a lot of corn that uh you know got chopped for silage or earlage or bailed up because it didn't even put an ear on, uh more or less destroyed for what his intended purpose was of harvested for grain.
• 4:44
  SPEAKER_01: And so we knew that all those acres were there in probably August, September.
• 4:49
  SPEAKER_01: We could have got a pretty good like guess of where what it should be.
• 4:54
  SPEAKER_01: But like by the time you so like if you're in South Dakota, Southern South Dakota, and your corn burned up and you chopped it for silage, well, the adjuster was out there, did an appraisal, put it in the system, uh, and then you uh uh you signed your claim probably after you get got done with early, I'm assuming.
• 5:13
  SPEAKER_01: Well, but you might have waited, right?
• 5:15
  SPEAKER_01: Because maybe you had a few acres you were gonna combine.
• 5:18
  SPEAKER_01: Uh so you're like, well, we better not finalize the claim yet because maybe we're on enterprise units and we gotta have every acre accounted for.
• 5:26
  SPEAKER_01: And so by the time you get done with harvest, get the adjuster out there, sign the paperwork, you know, most adjusters companies want to have claims wrapped up in November, December.
• 5:38
  SPEAKER_00: Yeah.
• 5:39
  SPEAKER_01: And that's when you're gonna funnel the numbers through the government software, right?
• 5:43
  SPEAKER_01: And so uh at first I thought, boy, that seemed like a big number to drop in January when we knew this in September.
• 5:51
  SPEAKER_01: It might actually be just that's how long it takes to get the final numbers in from the companies and make the uh acre adjustment.
• 6:00
  SPEAKER_01: Um I did find it surprising it's still the biggest that biggest number they've dropped uh in well, I mean, since 2002 was the next closest.
• 6:09
  SPEAKER_01: Like I mean that we've had some disaster areas before.
• 6:13
  SPEAKER_01: Yeah, this this I know it was bad in the West.
• 6:17
  SPEAKER_01: I don't think it was historic bad to the point where we would have seen this big a drop.
• 6:21
  SPEAKER_00: Well, even in a year like 19.
• 6:23
  SPEAKER_00: Yeah or or a year like we saw with uh Doratio.
• 6:26
  SPEAKER_00: Yep.
• 6:26
  SPEAKER_00: You know, a few of those events.
• 6:28
  SPEAKER_00: Um uh we've had our fair share of interesting and growing seasons over the past couple of years.
• 6:34
  SPEAKER_00: And with that being said, so when you take away the 20 bushel corn yield in in Beersford, South Dakota, that was supposed to be corn and now it's chopp for silage, that poor yield comes out of the overall number.
• 6:48
  SPEAKER_00: So that's no longer dragging down the national average.
• 6:51
  SPEAKER_00: So we did see the national average on corn go up a bushel as well.
• 6:54
  SPEAKER_00: That helped uh make up a little bit of that offset, but obviously not enough.
• 6:59
  SPEAKER_00: So that was what the main focus was on the production side.
• 7:02
  SPEAKER_00: The demand side on corn, I want to talk about how we changed every demand category lower on corn besides ethanol.
• 7:10
  SPEAKER_01: Yeah.
• 7:10
  SPEAKER_00: And they could have changed ethanol too, but nonetheless, the importance here is that they decreased exports significantly, which needed to happen in a lot of opinions.
• 7:20
  SPEAKER_00: Uh, they could probably do it a little bit more with looking at the pace that we're currently going at.
• 7:25
  SPEAKER_00: So we we were able to swallow a giant demand hit here and not raise ending stocks on the US corn balance sheet, which was a significant, I think, feat for this for this balance sheet to do.
• 7:41
  SPEAKER_00: Because we were going into this report just saying how bad demand was.
• 7:45
  SPEAKER_00: And now we were able to swallow a good drop of that demand and offset it perfectly, and then some with a drop in production.
• 7:53
  SPEAKER_00: So I think that's a really big feat moving forward for the United States balance sheet into this next marketing year.
• 7:59
  SPEAKER_01: Yep, it you're definitely right.
• 8:01
  SPEAKER_01: Now they probably left the door open for lowering that ethanol number in the future, right?
• 8:05
  SPEAKER_01: Definitely uh it'd be surprising, you know.
• 8:09
  SPEAKER_01: I if you're the USDA, you're probably like, well, I don't want to knock exports 50 million for the next four reports, right?
• 8:16
  SPEAKER_01: Yeah, so let's take a big dip now and then leave the door open for uh potentially lowering demand further on ethanol and things like that.
• 8:26
  SPEAKER_01: Um But you're right, like they that's how I I think uh you know you're you're it's always dangerous when you're trying to put yourself in government uh shoes on how they calculate things, but uh, you know, they didn't want to make it drastic one way or the other.
• 8:39
  SPEAKER_01: So you make the big cut, but you also uh lower the harvested acres, raise the yield.
• 8:44
  SPEAKER_01: Like they they're the way they they kind of m put all that together makes the end result not that big a change.
• 8:51
  SPEAKER_00: And it's been the last three, four weeks on ethanol that we've had this significant decrease in grind anyway, so it was pretty recent enough for them to to not have to develop too much of a trend off of it yet.
• 9:03
  SPEAKER_00: So they'll continue to change demand on that balance sheet going forward.
• 9:07
  SPEAKER_00: Uh they can continue to do that, but like the supply side, they're they're done with that here being the final crop report of the year.
• 9:13
  SPEAKER_01: Yep.
• 9:14
  SPEAKER_00: The soybean balance sheet.
• 9:16
  SPEAKER_00: So if we bounce over to that now, um, you know, a little bit easier to explain.
• 9:20
  SPEAKER_00: We saw a drop in production there as well, took down acres a little bit, uh, just uh just a smidge, and then took down the yield as well.
• 9:27
  SPEAKER_00: Uh a pretty significant yield drop, really, when you look at soybeans, it doesn't take much to move that one.
• 9:34
  SPEAKER_00: And uh really soybeans, you only saw one state that produced that's a major state that produced a record yield this year, and that was Arkansas.
• 9:41
  SPEAKER_00: So it yeah, it not really significant uh yield bumps from major uh major growing states.
• 9:48
  SPEAKER_00: And really in this report, the yield drop was in those major growing states on soybeans.
• 9:54
  SPEAKER_01: Yep, and so like if you think back to last fall, right, we had uh uh the drought early on that hit those western states hard, but then it kind of dried out through the rest of the corn belt.
• 10:05
  SPEAKER_01: And uh, you know, we were kind of maybe pleasantly surprised on corn yields, but as we know, August rains bring the soybean yields up, and a lot of areas missed that, and probably if finally uh the USDA figured that out and and put that in the in the report is yeah, uh but like I said, it it doesn't look like that big a move, but in soybeans that's a it don't take percentage-wise, it's a pretty big move.
• 10:28
  SPEAKER_01: So um it was I guess I didn't think they would probably drop it that much, but yeah, it it's probably real.
• 10:34
  SPEAKER_00: For what it's worth on the corn side, Illinois and Minnesota were the only states with record yields here for major states, which you went through Minnesota, I went through Illinois, neither one of us were surprised to see those two states poke a record from our crop tour.
• 10:48
  SPEAKER_00: Yep.
• 10:48
  SPEAKER_00: The um so that pretty much wraps us up for the U.S.
• 10:51
  SPEAKER_00: balance sheets.
• 10:52
  SPEAKER_00: You know, it it really gives us an opportunity moving forward to continue to say that if I wanted to wait for a little bit of a rally in this corn market to like 6.30 on this December 23, corn futures has been a mark I've been personally trying to shoot for.
• 11:08
  SPEAKER_00: Um, this kind of gives me a little bit more time.
• 11:11
  SPEAKER_00: It bought me some time to say, you know what, we're not worried too much about this major demand destruction that we've had occurring.
• 11:18
  SPEAKER_00: It didn't hurt our balance sheet yet.
• 11:19
  SPEAKER_00: We get another month or two.
• 11:21
  SPEAKER_00: Um we get just can get some crop insurance uh period through in February to get a little bit more short.
• 11:28
  SPEAKER_00: It buys us time.
• 11:29
  SPEAKER_00: So um I think that was a really important thing going after this report.
• 11:34
  SPEAKER_00: Hopefully it can lead to a a well-supported floor below us wherever that may be, and uh hold in some uh decent uh you know price premium for weather rallies coming forward that could really give us a a good slingshot from decent levels, not necessarily down in the lower end of uh the trading ranges.
• 11:53
  SPEAKER_01: Yeah, so and I totally agree.
• 11:56
  SPEAKER_01: Um I was always it's always kind of interesting when this report comes out because you um you start maybe that acreage battle a little bit or the talk of well what's how's this gonna affect what farmers plant come.
• 12:09
  SPEAKER_01: You know, we're only three, four months away from from planting.
• 12:13
  SPEAKER_01: Um you know, you're probably not a huge change either way, but uh, you know, one thing in the report those uh soft red winter wheat acres are up a little higher.
• 12:24
  SPEAKER_01: Uh so those aren't going back to corn.
• 12:26
  SPEAKER_01: I mean, you you can, I guess, uh it's you you could just destroy your wheat and plant corn if the market uh told you to do that, but I don't think you're gonna see a lot of that.
• 12:35
  SPEAKER_01: Unlikely.
• 12:36
  SPEAKER_01: Um and you know, just looking through a few guys I I know and and follow on Twitter, um, as you go north and west, they kind of thinking spring wheat might have to battle out some acres because um, you know, they you're coming off of uh uh pretty low stocks on that.
• 12:54
  SPEAKER_01: So they uh want to to if you want to build up the stocks of spring wheat, they're gonna have to battle some acres there.
• 13:02
  SPEAKER_01: Um so I I was kind of thinking maybe you'd have a brighter picture of what crop is going to win out in this acre battle.
• 13:10
  SPEAKER_01: And boy, we after today we just kind of fell right back in the same old, same old, didn't we?
• 13:15
  SPEAKER_00: Yeah, because I mean soybeans were for a while starting to gain some advantage back in their favor and say, you know, the it's almost looking like 2.37 on up is gonna be a ratio where you're gonna start to uh finally think about some more soybean acres holding the rotation, but the corn uh here the last couple trading sessions has brought that back to a more normal level and sounds like uh corn acres are gonna be favored pretty heavily this next year.
• 13:41
  SPEAKER_00: So other than that, on the report side, uh, you know, the other major talking point going into it was Argentina.
• 13:48
  SPEAKER_00: Uh oh, we did get that reduction out of them that they were looking for 45.5 million metric tons versus 49.5 in the last report.
• 13:58
  SPEAKER_00: Hadn't moved that needle yet.
• 14:00
  SPEAKER_00: We're wrapping up with planting in uh Argentina for soybeans here soon.
• 14:04
  SPEAKER_00: So it uh a lot of their crop year left before this April-May time frame before they really get into some harvest.
• 14:10
  SPEAKER_00: And uh that number, private analysts looking like low 40s, you know, at this early in the game, it seems like the first private analysts to come out with their yield expectations are always trying to prove a point or really get their name out there and say I can, you know, shock the market with a really low number.
• 14:27
  SPEAKER_00: So it'll be interesting.
• 14:28
  SPEAKER_00: I'm I'm thinking the lower 40s, uh the USDA might struggle to fight into that if we continue down this weather pattern.
• 14:35
  SPEAKER_00: But it's early, and crop conditions are 7% good to excellent on corn and 3% good excellent on soybeans down there.
• 14:42
  SPEAKER_00: So it's not like we're starting off on a very good foot down in Argentina, Lucas.
• 14:47
  SPEAKER_01: Nope, they uh they're gonna have to get uh a lot more timely rains to salvage that crop, that's for sure.
• 14:52
  SPEAKER_01: But um in sand, basically.
• 14:54
  SPEAKER_01: Yeah, you're you know, you're planting in sand, so it's not gonna hold moisture that well.
• 14:58
  SPEAKER_01: Um it's also probably we've probably beat that horse to death quite a bit.
• 15:04
  SPEAKER_01: Uh quite a bit.
• 15:05
  SPEAKER_01: But uh, I mean, I guess long story short, if you if you do get some more timely rains, then the USDA is probably right with their number, and if they don't, then the private analysts are probably more correct because I agree with you.
• 15:17
  SPEAKER_01: They like to to put a little flash in the pan and make people pay attention to them.
• 15:22
  SPEAKER_00: Well, either way, it gives us a lot to talk about.
• 15:24
  SPEAKER_00: This uh we could talk about this report for quite a while, actually, and in the market reaction we've had to it.
• 15:30
  SPEAKER_00: So please reach us out to us and uh let's talk about a few things and your operation.
• 15:35
  SPEAKER_00: And thanks for joining us today, Lucas.
• 15:37
  SPEAKER_00: You bet.
• 15:38
  SPEAKER_00: And thank you to all our listeners.
• 15:40
  SPEAKER_00: Please reach out to us at professional eggmarketing.com.
• 15:43
  SPEAKER_00: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 15:49
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 15:55
  SPEAKER_00: See you next time.