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WASDE Yield Adjustment · Professional Ag Marketing Podcast

• 0:01
  SPEAKER_01: Welcome to the Professional Ag Marketing Podcast.
• 0:04
  SPEAKER_01: If you want a deep dive into the ag markets and risk management strategies, your search is over.
• 0:10
  SPEAKER_01: Come here after every Friday to get your weekly commodity recap.
• 0:14
  SPEAKER_01: Trading commodity futures and options involve substantial risk of loss and is not suitable for all investors.
• 0:21
  SPEAKER_01: This is your host, Mike Minor.
• 0:22
  SPEAKER_01: Let's get started.
• 0:24
  SPEAKER_01: Today is May 13th.
• 0:25
  SPEAKER_01: I've got Lucas Peters with us here today.
• 0:27
  SPEAKER_01: We're going to talk a little bit about the WASDA Report this week that came out, their yield adjustment, and kind of how that was factored in.
• 0:34
  SPEAKER_01: And then we're going to talk about a little bit of crop insurance too as well, won't we, Lucas?
• 0:38
  SPEAKER_00: That sounds right, Mike.
• 0:39
  SPEAKER_01: Awesome.
• 0:40
  SPEAKER_01: Well, the USDA came out with some interesting numbers here.
• 0:43
  SPEAKER_01: The first report for their 2022-23 new crop marketing year.
• 0:47
  SPEAKER_01: A few of the highlights here as we start with the corn market on that.
• 0:52
  SPEAKER_01: The main talking point out of the report, again, as we mentioned, a 177 yield on that, Lucas.
• 0:58
  SPEAKER_01: That was estimated at a trend line of 181 prior to the report.
• 1:02
  SPEAKER_01: So that drop of about four bushels below trend line yield is going to need some explaining.
• 1:07
  SPEAKER_01: So I'll have you take care of that here in a little bit after we get through the report.
• 1:12
  SPEAKER_01: The other uh notable items were exports for that uh new crop marketing year, came in at$2.4 billion.
• 1:18
  SPEAKER_01: So that could get adjusted pretty dramatically in either direction there.
• 1:22
  SPEAKER_01: Uh 2.4 is likely the bottom end of the range from what we know today.
• 1:26
  SPEAKER_01: Uh that could easily be 2.7 with a bigger crop potentially.
• 1:30
  SPEAKER_01: Uh the United States, though, however, high US dollar with rising interest rates, not as competitive globally, but also we're kind of the only game in town, especially if uh the Ukraine situation and Russians continues in their war efforts.
• 1:45
  SPEAKER_01: And uh let's say Brazil maybe comes up with a little bit of a short crop on their corn side as well, which going into this report, the Brazilians were supposed to uh cut their production a little bit, and uh they did not actually move those numbers in this report, left it at 116 million metric tons.
• 2:02
  SPEAKER_01: So that surprised some people in this one as well.
• 2:05
  SPEAKER_01: The uh corn situation came in a little bit friendly, more neutral, I would argue, uh, besides the yield standpoint, but overall the ending stocks came in pretty close to what they had expected on corn.
• 2:16
  SPEAKER_01: For soybeans, they did uh uh did leave the new crop about what they expected here, uh left it at a trend line yield.
• 2:24
  SPEAKER_01: Um, no major concerns when it comes to the demand side, good crushings, exports numbers, but they did increase the old crop demand a little bit with some increased exports, so that was a little bit friendly as well.
• 2:36
  SPEAKER_01: The uh main talking point other than corn and soybeans here was definitely the wheat market, as we saw a huge run-up yesterday in wheat prices, 60 or so cents higher across the board for all three wheats.
• 2:49
  SPEAKER_01: Um we saw the USDA major decline in winter wheat production, and uh with the drier uh conditions in the southern plains, that helped pull those production estimates lower, as well as some uh shortfall in acres and planting conditions in the north with the spring wheat in North Dakota and some of those unfair uh conditions there.
• 3:10
  SPEAKER_01: But the US the U.S.
• 3:12
  SPEAKER_01: wheat shortfall is just bad news altogether, right?
• 3:14
  SPEAKER_01: With an already tight global wheat supply, uh that's kind of been squeezed further as the Russia-Ukraine war blocks exports from the Black Sea region.
• 3:23
  SPEAKER_01: So um that is definitely a tight situation, and we saw a strong reaction out of the wheat market yesterday, and that kind of helped to propel these other grains higher as well.
• 3:32
  SPEAKER_01: Seeing a nice reaction, not a heck of a lot of follow-through on corn today uh and wheat, but we did see the soybeans try to rally here with some technical buying and uh and that ratio kind of getting out of whack again with the corn to soybean ratio under two now.
• 3:47
  SPEAKER_01: So uh favoring corn a little bit there as we go into the spring.
• 3:50
  SPEAKER_01: But let's get on to our main talking point here, Lucas, that 177.
• 3:55
  SPEAKER_01: Do you want to go through what you found out about how that is calculated and then what we should look forward to in the next couple reports?
• 4:03
  SPEAKER_00: Sure, that sounds like a plan.
• 4:04
  SPEAKER_00: So, you know, after the uh report came out yesterday, we were all probably a little surprised, Mike, of we didn't uh we thought they might adjust it, but actually probably not adjust it.
• 4:16
  SPEAKER_00: Uh and then all of a sudden it comes out and four bushels lower, and the you know, the reason they cited was uh slower than normal planting progress, right?
• 4:24
  SPEAKER_00: Um and depending on where you're at, you probably have realized that or not.
• 4:29
  SPEAKER_00: You know, it got we got off to a slow start across the Cornbell with the cold temps.
• 4:34
  SPEAKER_00: Uh now some areas are wet and some areas are dry.
• 4:37
  SPEAKER_00: So planting really kind of started to pick up pace uh this week uh across most of our area.
• 4:43
  SPEAKER_00: Um but you know, kind of getting back to the report, when they come out with that big of drop, you the obvious question is, well, what data did they use to suggest it should go down that much, right?
• 4:53
  SPEAKER_00: Yeah.
• 4:54
  SPEAKER_00: Uh and and they never come out and clearly say, well, this is what why.
• 4:57
  SPEAKER_00: Um but you know, one thing the USDA has started to do, which is really cool, is on Twitter, after uh certain reports, maybe they do it at every port, I don't think they do, but uh they do the stat chat.
• 5:09
  SPEAKER_00: And and so you can get on and you can uh DM and message uh the USDA guys and ask them questions.
• 5:17
  SPEAKER_01: Always a lot of happy people on that.
• 5:19
  SPEAKER_01: I mean, always, right?
• 5:21
  SPEAKER_01: No one criticizing the USDA at all in any way, shape, or form.
• 5:24
  SPEAKER_01: Never.
• 5:25
  SPEAKER_00: All helpful helpful information being shared.
• 5:28
  SPEAKER_00: Of course.
• 5:28
  SPEAKER_00: Uh but you know, obviously one of the first questions was why did you lower it that much?
• 5:34
  SPEAKER_00: And he uh cited, you know, based on slow planting progress, and um and a model that they use uh go goes back to 1988 and to determine expected yield.
• 5:45
  SPEAKER_00: Uh and then he the guy that was on Twitter, and I should reference his name, Lance Honig from the USDA uh NAS office, was running the StatChat Twitter session yesterday, and he posted a link to uh essentially a report uh that the Economic Research Service uh branch of the USDA uses to determine uh expected yield.
• 6:10
  SPEAKER_00: Okay, and in that report it goes through and uses a lot of data points.
• 6:15
  SPEAKER_00: Um, but the the main items they look at are uh planting progress uh as of May 15th.
• 6:24
  SPEAKER_00: Uh obviously we aren't we aren't at May 15th, so they kind of uh project it to May 15th.
• 6:30
  SPEAKER_00: Um then they look at extremely dry Junes, July temperature, and July moisture.
• 6:38
  SPEAKER_00: Okay, so let's forget the the last three for a minute and go back to planting progress to May 15th.
• 6:45
  SPEAKER_00: What their data suggests, and they look at eight states, um Iowa, Illinois, Nebraska, Minnesota, Indiana, South Dakota, Ohio, and Missouri, and they look at planting progress, and they say on a normal year to reach uh trend line yields, those states have to be 80% planted by May 15th.
• 7:07
  SPEAKER_01: And I would probably not out of the ordinary, right?
• 7:09
  SPEAKER_01: I mean, uh all the pioneer to cow, all the seed guys say ideal planting windows April 25th through May 10th, whatever that is, right?
• 7:18
  SPEAKER_00: Yep, exactly.
• 7:19
  SPEAKER_00: Like the the first week of May, you're not really losing any potential.
• 7:22
  SPEAKER_00: So you got to start a little bit before that and plant a little bit after that to reach maximum potential.
• 7:27
  SPEAKER_00: So that that kind of goes along, and our planting progress reports would suggest most years were at 80% planted in the US by May 15th.
• 7:37
  SPEAKER_00: So uh it's the years that we aren't that are the surprise.
• 7:40
  SPEAKER_00: And obviously, this year we are not there.
• 7:43
  SPEAKER_00: Um, you know, last what last Monday was 22% corners.
• 7:47
  SPEAKER_01: Yeah, versus 50 normally kind of area.
• 7:49
  SPEAKER_00: Exactly.
• 7:50
  SPEAKER_00: Uh for first week of May.
• 7:52
  SPEAKER_00: Yeah.
• 7:52
  SPEAKER_00: Uh, you know, the other years that stick out are on the the line are 2019 we were slow and 2013 were slow.
• 7:59
  SPEAKER_00: Okay, and we'll come back to those years in a minute.
• 8:02
  SPEAKER_00: So when we look at the the the equation or the the data they're using for expected yield, uh the relationship to planting progress and final yield is a very linear relationship.
• 8:17
  SPEAKER_00: Meaning if the planting progress is faster than normal by May 15th, the yield goes up.
• 8:23
  SPEAKER_00: If the progress is slower than normal, it goes down.
• 8:26
  SPEAKER_00: And the coefficient for that equation is 0.289, meaning for every percent difference from 80%, which is normal, if you're faster than 80%, each percent will be a 0.289 bushel increase.
• 8:42
  SPEAKER_00: If you're slower than 80%, a 0.289 bushel decrease.
• 8:45
  SPEAKER_00: Okay?
• 8:46
  SPEAKER_00: So they lowered it by four bushel, right, Mike?
• 8:49
  SPEAKER_00: Yeah.
• 8:50
  SPEAKER_00: So uh I would think that USDA thinks that come May 15th, which is Sunday, uh planting progress is going to be somewhere around 60 to 65 percent.
• 9:04
  SPEAKER_01: Are we?
• 9:05
  SPEAKER_00: So looking back, right, 22% last Monday, the f most acres we've ever added in a weekly report, I think is 43 or 45.
• 9:16
  SPEAKER_00: That's a big week.
• 9:17
  SPEAKER_00: That's a really big week.
• 9:18
  SPEAKER_01: I don't think you plant half almost half the corn for the nation in a week.
• 9:23
  SPEAKER_00: Correct.
• 9:23
  SPEAKER_00: So it's gonna be a stretch to get there.
• 9:26
  SPEAKER_01: Yeah.
• 9:27
  SPEAKER_00: And and I'll but this is what their data is suggesting.
• 9:30
  SPEAKER_00: And I should also point out this is what the equation says.
• 9:34
  SPEAKER_00: USDA does not have to uh a hundred percent follow this equation.
• 9:39
  SPEAKER_01: Yeah.
• 9:39
  SPEAKER_00: But they likely did a little bit this year.
• 9:42
  SPEAKER_00: So even if we come in at 55% planted, obviously that would suggest maybe the yield should have been a little lower, but they're like, well, that's maybe projections are that planting's gonna pick up, so they they increase it.
• 9:53
  SPEAKER_01: But um and this week too, they're expecting a big week for planting, right?
• 9:58
  SPEAKER_01: 100%, yeah.
• 9:59
  SPEAKER_00: Drier conditions and drier conditions, a lot of big chunk of the corn belt of important states.
• 10:04
  SPEAKER_01: Warmed up a bit.
• 10:05
  SPEAKER_00: It it was warm temps across the the corn belt, so uh so it we should add a lot of acres.
• 10:11
  SPEAKER_00: Yeah.
• 10:12
  SPEAKER_00: And and but we probably won't aren't gonna be over sixty percent.
• 10:16
  SPEAKER_01: Yeah, gonna be tough.
• 10:17
  SPEAKER_00: I wouldn't think so.
• 10:18
  SPEAKER_00: Uh so that would suggest we're slower than normal.
• 10:21
  SPEAKER_00: And if you use that 0.289 bushel calculation, yeah, it should be lowered by four or five bushel based on slow planting progress.
• 10:31
  SPEAKER_00: Um so you we kind of surprised by the report, we look at this data, we say, well, yeah, that actually kind of makes sense.
• 10:38
  SPEAKER_00: So what about like using this data in previous years?
• 10:42
  SPEAKER_00: So we go back to 2013.
• 10:44
  SPEAKER_00: 2013 is another really slow planting progress year.
• 10:49
  SPEAKER_00: Uh we also were slow, slow, slow, and then we had a huge uptick in one week.
• 10:53
  SPEAKER_00: Okay.
• 10:54
  SPEAKER_00: And so unfortunately, that uptick happened like after the WASDI report came out in May of 2013.
• 11:01
  SPEAKER_00: But on the May 2013 WASDI report, they decreased the yield by 5.6 bushels.
• 11:07
  SPEAKER_00: That's a big move.
• 11:08
  SPEAKER_00: And cited due to slow planting conditions.
• 11:12
  SPEAKER_00: Um so the the history suggests, well, yeah, they've done it before, very similar to what they did in 2022.
• 11:21
  SPEAKER_00: In 2012, of course, the drought year, we were the exact opposite.
• 11:26
  SPEAKER_00: We were planting faster than normal.
• 11:27
  SPEAKER_00: And on the May 15th, we were 92% planted.
• 11:31
  SPEAKER_00: So roughly 12% over our 80% benchmark, and they did increase the yield on the May Wazdi report in 2012 by two bushel an acre.
• 11:42
  SPEAKER_00: Okay.
• 11:42
  SPEAKER_00: So they seemed to follow this, except 2019.
• 11:46
  SPEAKER_00: They didn't.
• 11:47
  SPEAKER_00: Right?
• 11:48
  SPEAKER_00: You remember 2019, Mike.
• 11:49
  SPEAKER_00: You probably don't remember 2013.
• 11:50
  SPEAKER_00: You're kind of a young pup.
• 11:52
  SPEAKER_01: But the the start of 2019 wasn't quite as bad.
• 11:56
  SPEAKER_00: We started after this point.
• 11:57
  SPEAKER_00: Correct.
• 11:58
  SPEAKER_00: So we started actually faster than we have this year for planting progress.
• 12:03
  SPEAKER_01: Don't take that to heart, guys.
• 12:04
  SPEAKER_01: It'll be okay.
• 12:06
  SPEAKER_00: The problem is we never sped it up.
• 12:07
  SPEAKER_00: We never got the opportunity to speed it up, and we ended up with 19 million acres of PP across the country.
• 12:14
  SPEAKER_00: Um, but they did not decrease, we were we were still slow, and the data would suggest that they should have lowered it by three to four bushel based on where planting progress was on May 15th, and they did not.
• 12:29
  SPEAKER_00: Um, but they did do it in June.
• 12:32
  SPEAKER_00: So did they kind of wait and see?
• 12:35
  SPEAKER_00: I I don't know.
• 12:36
  SPEAKER_00: That that's the part of the USDA doesn't always have to follow this equation to a T.
• 12:41
  SPEAKER_00: Yeah.
• 12:42
  SPEAKER_00: Okay.
• 12:43
  SPEAKER_00: Um, and obviously it doesn't really have a bearing on the final yield.
• 12:48
  SPEAKER_00: You look at 2012, they increased the yield in May and then just decreased it every single report after that.
• 12:54
  SPEAKER_01: Yeah, 37 off of trend line.
• 12:56
  SPEAKER_00: Yeah, exactly.
• 12:57
  SPEAKER_00: So is it that important?
• 13:00
  SPEAKER_00: Yeah, probably not, but it is kind of cool that they published the equation and the data that they used to help impact that decision, and and something we should probably watch going forward.
• 13:11
  SPEAKER_00: Uh going forward both into the next few years, but also on this kind of the next part of the data that they use.
• 13:18
  SPEAKER_00: Uh, you know, when I first mentioned the data points, one was planting progress, obviously.
• 13:23
  SPEAKER_00: One was June precipitation.
• 13:25
  SPEAKER_00: They only count that if the June precipitation is significantly low.
• 13:32
  SPEAKER_00: How low?
• 13:33
  SPEAKER_00: And so the like the bottom 10% of normal.
• 13:36
  SPEAKER_00: So they used they dropped the yield in June based off of that equation in 12.
• 13:42
  SPEAKER_00: Um and and they would have done it in 88 based on the equation.
• 13:47
  SPEAKER_00: Yeah.
• 13:48
  SPEAKER_00: Otherwise, they have not changed it.
• 13:50
  SPEAKER_00: Okay.
• 13:50
  SPEAKER_00: Because June generally has average rainfall across those eight key states.
• 13:56
  SPEAKER_00: Uh then July temperature also has a linear linear relationship to yield, meaning hotter, lower yield, colder, higher yield.
• 14:06
  SPEAKER_00: Okay.
• 14:07
  SPEAKER_00: Uh that makes sense.
• 14:08
  SPEAKER_00: Um, so they'll start looking at that uh when they start uh figuring out the expected yield.
• 14:15
  SPEAKER_00: July moisture is the last part that's really important.
• 14:19
  SPEAKER_00: That's a little harder to figure because it's nonlinear.
• 14:23
  SPEAKER_00: Um if you have low precipitation, it hurts yield more in July.
• 14:29
  SPEAKER_00: If you have high precipitation in July, it really doesn't help yield.
• 14:33
  SPEAKER_00: It just kind of maintains it.
• 14:35
  SPEAKER_00: Uh so those are kind of some things that now that we've seen this equation and looked at some of the numbers, we'll kick around and see if we can't come up with a little better prediction going through the summer on on our yield.
• 14:46
  SPEAKER_00: But uh just kind of some interesting things that uh are out there and and maybe we can put to use going forward in the future.
• 14:53
  SPEAKER_01: Very interesting topic.
• 14:54
  SPEAKER_01: Thank you for coming on today to discuss that.
• 14:56
  SPEAKER_01: And same for all of you guys.
• 14:58
  SPEAKER_01: If you have any uh any questions about the report or want us to look into anything, please let us know and and we will do that for you.
• 15:05
  SPEAKER_01: How about on the insurance side of things?
• 15:07
  SPEAKER_01: What do you think about Prevent Plant?
• 15:10
  SPEAKER_00: Yeah, so uh uh Prevent Plant uh likely gonna have a few pre PP acres, northern South Dakota, north North Dakota, uh maybe northwest Minnesota.
• 15:22
  SPEAKER_00: Uh key thing on Prevent Plant, we we can't do anything on Prevent Plant corn until after the final plant date, which is gonna be May 25th for uh most of our area, May 31st, uh excuse me, May 25th in a lot of those areas, May 31st in other areas.
• 15:39
  SPEAKER_00: So be sure to talk to your agent about that.
• 15:41
  SPEAKER_00: We still got a couple of weeks, so let's not get too excited and start uh counting our PP checks yet.
• 15:47
  SPEAKER_00: Um but the one thing I did want to mention was on replant.
• 15:50
  SPEAKER_00: Uh replant, um, you know, we we we did plant a few acres in the cold, right?
• 15:57
  SPEAKER_00: Uh then we slammed in a lot of acres because it was dry in certain areas, and now we got a lot of rain, and we probably got some ponding or crusting or things that'll happen.
• 16:08
  SPEAKER_00: Uh so if you do have some acres that look pretty tough coming out of the ground and you want to replant, the number one thing with replant is be sure to talk to your agent uh before you go replant.
• 16:20
  SPEAKER_00: Okay, the replant payment: eight bushels an acre, eight bushels of corn, three bushels of soybeans times the price, so 45 to 50 bucks an acre uh this year for your replant payment.
• 16:33
  SPEAKER_00: That's pretty good payment.
• 16:35
  SPEAKER_00: And all you got to do is talk to your agent, tell them to submit a notice of loss, talk to an adjuster.
• 16:41
  SPEAKER_00: You have to qualify for replant with 20 acres or 20% of the unit, whichever's less, um, and a few other things.
• 16:47
  SPEAKER_00: But uh the biggest thing is if you got some spots that look tough, aren't coming out, turn in the notice of loss with your agent and start the process.
• 16:56
  SPEAKER_01: Thank you, Lucas.
• 16:57
  SPEAKER_01: How about we send these guys home with some useful information?
• 17:00
  SPEAKER_01: Weather for the next week.
• 17:02
  SPEAKER_01: What are you thinking?
• 17:02
  SPEAKER_00: Yeah, so uh, you know, one thing we do a lot is look ahead to the future uh coming days and see what the planting progress is going to be this time of year.
• 17:10
  SPEAKER_00: And and as we get into next week, you know, temperatures look to moderate around 70 degrees for a big chunk of our area, not a lot of precip, although we do have a few chances of light pre-sip.
• 17:23
  SPEAKER_00: Uh, all in all, it should be a pretty good week to get uh some more planting done, get our sprayer applications made, and uh hopefully get the uh 2022 growing season off to the right start.
• 17:34
  SPEAKER_01: Thank you, Lucas, and thank you to all our listeners.
• 17:37
  SPEAKER_01: Please reach out to us from our website at professionalagmarketing.com or check out our newly added hog specific podcast named Hog Market Talk that's released every Thursday.
• 17:49
  SPEAKER_01: Trading commodity futures and options involve substantial risk and loss that is not suitable for all investors.