USDA reports lots of numbers and deciphering monthly data dumps can be daunting. Perhaps the best way to cut to the chase is to look at the bottom line, due this week from USDA.
The Aug. 12 World Agricultural Supply and Demand Estimates report forecasts corn and soybean cash prices received by farmers. Trouble is that these are projections for averages. They don’t indicate how much markets could fluctuate between highs and lows.
Once upon a time, or at least until May 2019, the government published a range for its estimates. Analysts just condensed these into a mid-point and economists pointed out flaws in the methodology behind the guesses, so the system evolved.
Still, having a target for highs and lows is useful. So even if USDA doesn’t provide buyers with a floor and sellers a ceiling, it’s possible to translate the government’s averages into a price range. The key is understanding how world events could drive these extremes.
Consider these factors:
China soybeans, corn ethanol. This likely seems obvious, especially for soybeans, which long danced to the tunes of Chinese buying and production from South American competitors. But global events play into corn as well. The poster child for feed grains is ethanol, which is two-stepped to pushes and pulls from the petroleum market.
The war with Iran triggered a surge in crude oil as a reminder of biofuel’s blinders. Higher gasoline costs made ethanol an attractive alternative, but only up to a point. If costly gasoline discourages driving, less ethanol could be needed for blending, reducing demand. Talk about double-edged swords!
More cash, more beef. When developing ranges, it’s also important to consider other factors that can work into the mix. Corn’s largest domestic demand category is feed for livestock, which in turn often reflects the health of the economy. Consumers with more cash sometimes spend it on beef, the top of the food chain, thanks to record cattle prices and a higher cost-of-gain than poultry, pork or fish. If times are tough, a tin of tuna or a drumstick is easier to afford than a filet or a ribeye.
Corn and soybean price ranges
To account for variations in these influences, I combined a series of variables to create price ranges for both crops.
Corn. My models, for example, project an average cash price for corn of $4.12, with a wide range from $1.80 with huge crops and weak demand, all the way to $6.44 if crops wilt and usage stays strong.
Soybeans. Admittedly tougher to reach, but soybean prices could average $10.24 in a market that ranges from $4.54 to $12.41.
Averages in these price expectations suggest current futures markets offer at least a modicum of value for sellers. Prices ain’t great, but they could be worse — a whole lot worse.
