Posted by: usset001 | January 21, 2011

The Balance Sheet Part I: Supply

Today we focus on the supply side of the balance sheet

The World Agricultural Outlook Board (part of the United States Department of Agriculture) puts out World Agricultural Supply and Demand Estimates (WASDE) between the 8th and 12th day of each month. This report provides the most current USDA forecasts of United States and world supply/demand balances of major grains, soybeans and products, and cotton. Balance sheets are also published for sugar and livestock products.

The balance sheet for corn shown here is of my own making, and shows 3 crop years (2009-10, 2010-11, and 2011-12) using estimates and projections from the most recent WASDE report from January 12, 2011. USDA projections are (in their words) “based on economic analysis, normal weather, trends, and judgment.” The January WASDE report also showed three crop years, but that included 2008-09 and excluded 2011-12. I want us to look ahead.

An official USDA projection for the 2011/2012 crop year for corn and soybeans will not be available until the May report. However, their first unofficial glimpse into the 2011-12 crop year will be unveiled at the Agricultural Outlook Forum, scheduled for the end of February. Over the past decade or so, the Outlook Forum has evolved from (what seemed to me) an informal gathering of Ag economists into a high-priced formal gathering in Washington D.C., complete with big name speakers on a wide variety of topics. This year, you can even hear former President Bill Clinton speak, but I doubt he will weigh in on the prospects for U.S. corn yields in 2011.

In the balance sheet, the supply side of the equation begins with planted acres. Isn’t this the debate we are having right now? For corn, soybeans, and spring wheat, the first official attempt to measure planted acres is published at the end of March in the “Prospective Plantings” report of the National Agricultural Statistics Service (part of the USDA). Many private firms will work to develop their own estimates of planted acres in the year ahead.

The Prospective Plantings report summarizes a survey of expected plantings as of March 1 for all crops planted in the spring. A separate report, Winter Wheat and Rye Seedings, (also from the National Agricultural Statistics Service) is released in the second week of January. This report contains the seeded acreage of the annual winter wheat and rye crops.

From planted acres an estimate is made of harvested acres. Not every acre planted is harvested. Some acres are destroyed by weather conditions. In corn, a number of acres are harvested as silage. I can tell you that in the last ten years, 91% of the corn acres planted have been harvested, but the percentage harvested is slowly rising as acreage has increased for the purpose of producing corn for ethanol, and not corn for silage. For an estimate of harvested acres in 2011, I would use a percentage harvested of 92-92.5%.

In soybeans, about 98.5-99% of the soybean acres planted are harvested. A modest amount of wheat acres are lost each year to forage. Over the past decade, the percentage of harvested acres to planted acres has ranged from 76-89%. With wheat prices as high as they are, I would guess that the 2011 figure will be something closer to the high end of this range.

The USDA and other private analysts often use some form of a trend yield to calculate expected yields in the year ahead. Would you like to start a fight among grain analysts? Ask them to compare notes and estimates of a reasonable “trend yield” in corn, soybeans or wheat.

With an estimate of harvested acres and yield in hand, we have our first look at expected production.

production = harvested acres * yield

Growing season adjustments to supply:

The yield estimate can have a very large impact on total production, so the USDA and many private analysts spend lots of time and resources on accurately assessing yield prospects throughout the growing season. The USDA publishes a Weekly Weather and Crop Bulletin that contains weekly national agricultural weather summaries, including the weather’s effect on crops for 44 states and the New England area. They also release a Crop Progress report every week during the growing season. This report lists planting, fruiting, and harvesting progress and overall condition of selected crops in major producing states. The crop condition is noted by state as percent “very poor,” “poor,” “fair,” “good,” and “excellent.” By the way, there are several private analysts who have developed elaborate yield projection models based on the data gathered in the weekly Crop Progress report.

Production is the largest piece of total supply as….

total supply = beginning stocks + production + imports

Beginning stocks are simply ending stocks from the previous year. Imports of corn and soybeans are small. Wheat imports are small relative to production, but large enough to have a modest impact on total supply. Most wheat imports consist of durum and hard red spring wheat from Canada.

An in-depth look at grain stocks is released four times each year in the Grain Stocks report from the National Agricultural Statistics Service. This report contains stocks as of the first days of March, June, September, and December of all wheat, corn, soybeans, and other grains and oilseeds by state and for the U.S. total. Stocks are also segmented by on-farm or off-farm. This report also includes an estimate of the number and capacity of off-farm storage facilities and capacity of on-farm storage facilities.

Next up we will look at the demand side of the balance sheet.


Responses

  1. On the supply side what are some of the most important factors to consider? I understand that demand, weather, and politics, have the largest influence on the price of grain, however, would it not be beneficial to analyse the inputs to the supply side of grain production (i.e. capital requirements for upgrading equipment, cost of fertilizer, subsidies, etc.)? Would these examples have an impact on overall production and thus on price?

    This is a great blog. As someone trying to learn the agriculture commodity market I appreciate the effort you’ve put into it. If you have other suggestions for reading please post.


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