Between the time this article is written and it is published, the USDA will release the first official 2011/12 crop marketing year supply, demand, and price estimates. Supply and demand information provides market power. Without USDA’s WASDE (World Agriculture Supply and Demand Estimates), the only market players with current supply and demand information would be large companies that have the ability to obtain and analyze market information.
Three points: USDA reports make the market more efficient (reduce price variability); the May WASDE 2011/12 estimates will be wrong; and with the upcoming budget cuts, there is a chance that some of the reports will be discontinued, the timing of the reports will be revised, or the number of reports will be reduced.
The May WASDE reports provide the first official projections for the 2011/12 wheat marketing year (June 2011 through May 2012). The wheat estimates are made before the winter wheat is harvested and before the spring wheat is planted. Accuracy is limited.
The value of the USDA’s WASDE reports are shown by about 20 market analysis firms publishing estimates a week before USDA’s reports are released. One goal of the firms’ estimates is to predict USDA’s estimates. Another way to put this is that the firm whose estimates are the closest to USDA’s estimate is perceived to have the most accurate estimate.
In the May 2011 WASDE reports, the USDA will publish the supply, demand, and price estimates for the 2009/10, 2010/11, and 2011/12 marketing year. The 2009/10 numbers will have a high degree of accuracy. The 2010/11 estimates (marketing year ends on May 31) will be very close to the actual final numbers. The 2011/12 estimates will be the best available but may change dramatically between now and May 2012.
In the May 2010 WASDE report, 2010 U.S. wheat production was projected to be 2.043 billion bushels. The final production estimate was 2.208 billion bushels, an eight percent increase.
For 2010/11 U.S. wheat ending stocks were projected to be 997 million bushels - “the highest since 1987/88.” Ending stocks for 2010/11 are now projected to be about 850 million bushels.
Exports were projected to be 900 million bushels compared to the current estimate of about 1.275 billion bushels. The export error of 375 million bushels more than offset the production error of 165 million bushels.
The export difference was mostly due to lower than expected world wheat production. In the May 2010 WASDE, 2010/11 wheat production was projected to be 24.7 billion bushels.
Actual world wheat production was closer to 23.8 billion bushels. Lower foreign wheat production resulted in increased U.S. exports.
In May 2010, world wheat ending stocks were projected to be 7.3 billion bushels compared to 6.7 billion bushels in the April 2011 WASDE report.
In May 2010, the average annual U.S. wheat price range was $4.10 to $5.10 with a mid-point of $4.60. The actual 2010/11 marketing year average annual price will end up around $5.60.
A lot will be written about the May 2011 USDA WASDE estimates. The trade will use the estimates to establish the wheat price. Price changes will be the result of changes in the May estimates. The May 2011/12 estimates will set the foundation for 2011/12 marketing year wheat prices.
The things to remember are that the USDA May WASDE estimates are the best estimates available and that the estimates are wrong. No one knows if the final estimates will be above or below USDA’s May estimates. All we know is that the base numbers have been set.
The good news is that the May 2011 price estimate for the 2011/12 marketing year is significantly higher than the May 2010 price estimate for the 2010/11 marketing year.