WASDE – The Numbers vs. Uncertainty

US - USDA is counted on to publish the monthly World Agricultural Supply and Demand Estimates (WASDE) report, and it needs to be read carefully. But the uncertainties of both supply and demand at this time of the year are almost more important than the numbers USDA can pin to the page.
calendar icon 10 June 2011
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The first words in the latest WASDE report are these: "Because spring planting is still underway in the Northern Hemisphere and remains several months away in the Southern Hemisphere, these projections are highly tentative." The most important unknowns are weather conditions this year; and China imports next year.

Flooding and planting delays have knocked 1.5 million acres out of expected US corn plantings, but USDA has not reduced yield expectations below long term trend of 158.7 bu/acre. The key unknown is July/August weather that could move actual production either way – up or down.

Concerns about high corn prices – high prices for everything! – do not show up much in this WASDE as world use continues to grow for wheat, rice and coarse grains.

From a market development perspective, the dynamics of world grain markets pose a big challenge – the WASDE numbers look only one year out, and the June WASDE numbers are good only for the coming month. How do we position ourselves for the coming 5 or 7 or 10 years of world supply and demand? What does this WASDE tell us about drivers of future demand and the need for market development efforts?

First, there is uncertainty about supply. Weather can knock production back in one or more major producing countries in any given year. So US producers cannot be complacent about yields or the adequacy of their production. The short crop in 2010 hit all of our customers hard, and their ongoing willingness to rely on US coarse grain supplies depends on their confidence that US producers are ‘producing for the world.’ Clearly the up-side potential for yield increases is there.

Secondly, there is uncertainty about demand. Sure, populations are growing, and incomes are growing in important developing countries. But will that potential translate into ‘effective demand’ – into efficient food production industries delivering safe and affordable meat, milk and eggs to consumers using US coarse grains and products? And when will that happen? That does not happen automatically. The US Grains Council works to ensure that emerging markets get their policies right – the rules of the game that allow domestic entrepreneurs to build their businesses and allow trade to work. And then the Council acts as a catalyst in the emergence of dynamic industries and industry associations that build themselves with good information, efficiency, creativity and consumer services.

The lessons from WASDE are these: In spite of uncertainty, US producers must be efficient and aggressive in producing for world demand. They must be prepared to meet the competition in South America and the Black Sea Region. Global markets offer a great opportunity for the future profitability of US agriculture. We need to remember that, and need to work actively to bring the potential into reality.

Further Reading

- You can view the WASDE report by clicking here.
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