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The standard-bearer for trusted agricultural data has faced uncommon criticism in recent weeks of having become irrelevant. Last month's July WASDE report left markets with more questions than answers about the prospects for this year’s corn, soybean, and other crops. Spring floods in the Midwest delayed the season, so that much of the WASDE data didn’t accurately reflect events on the ground.
As the next WASDE, or World Agricultural Supply and Demand Estimates, is about to be released on Aug. 12, it’s worth analyzing how influential the USDA monthly reports are. There will be years such as this one when the timing of WASDE’s complex methodologies don’t synchronize with Corn Belt growing conditions. But over the years, the report has proved to be the most reliable source of data for agricultural industry players.
A Gro Intelligence analysis found that market-price movements on average are 33% greater on days when WASDE is released than on other trading days. Overall, the August WASDE is the third-biggest market mover, after the January and October reports.
This year, however, could see the August report surrender some of that influence, after the USDA decided to delay until September its Objective Yield Survey that markets consider more reliable than the weather-adjusted trend yield featured in WASDEs prior to August. However, other data in the August WASDE will be extremely important, particularly recent data on acres planted based on resurveys of farmers in late July.
In this Featured Insight, we examine the outsize market-moving role that WASDE has played since the turn of the century. During that time, other technologies have emerged, including the machine-learning basis for Gro’s yield forecast models. Such new technologies are excellent complements to the in-depth, though often opaque, analysis of the US government.
The WASDE report is published monthly by the USDA’s World Agricultural Outlook Board (WAOB) and includes global forecasts for major grains and oilseeds, along with US coverage of livestock, dairy, and sugar. WASDE represents a massive worldwide effort to compile domestic and foreign data from multiple US government agencies, which themselves conduct painstaking surveys and extract local market information to inform the report’s detailed estimates. Weather and satellite data are also used to project crop yields. Because of the large amount of data used to compile the WASDE report, the data behind the estimates can be lagged by several weeks or more.
When it comes to market-moving news, WASDE packs a punch. Gro’s analysis of WASDE’s influence since 2000 found significantly greater changes in futures prices for corn, soybeans, wheat, and cotton on days WASDE was reported than on other days of the year. We also found that WASDE’s ability to move markets hasn’t diminished in that near-20-year time frame for corn, wheat, and cotton. However, soybean markets have seen a decline in WASDE’s importance in the past two years, probably a result of US/China trade-related friction.
To construct our indicator, we first calculate the absolute value of the daily percentage change in the futures contract closest to expiration for each market since 2000. Next, we separate the trading days into two buckets: WASDE report dates and non-WASDE report dates. We then group the results by month and year, and calculate a simple average of those groups. Finally, we divide the WASDE averages for each month and year by the corresponding non-WASDE average.
The results of this process yield a WASDE to non-WASDE price volatility ratio for each month and year. The benefit of this approach is that it produces a normalized apples-to-apples comparison across different areas of trading.
The first chart below presents the results of this analysis by month. Since 2000, the January WASDE has had the most impact of any monthly report by far. January trading generally lacks other substantial fundamental news, being between the key growing seasons of the Northern and Southern Hemispheres. Therefore, the January WASDE report can have an outsize impact on markets.
WASDE’s second-biggest market impact is in October, when the USDA usually features that year’s soybean pod weights for the first time, giving markets a clearer sense of soybean yields. The August WASDE has the next biggest impact, as many crops have nearly finished growing and the USDA is able to home in on its final supply estimates for the year.
We then sought to determine if WASDE’s impact has diminished in recent years. In the charts below, organized by type of crop, we show three different ratios: the average ratio for all months, the average ratio for “in season” months (defined as January plus May through November), and the average ratio for the current year to date.
We provide the “in season” ratio to remove months where WASDE doesn’t provide material updates to US crop production. The current year-to-date ratio is offered to contextualize this year’s value, since excluding more extreme reports near harvest season would skew our current year’s results compared to the past.
For corn, wheat, and cotton, the importance of WASDE has held relatively steady over the past 20 years. WASDE report days have almost always seen higher price volatility than nonreport days, save for a few outlier years in each market. Since 2000, corn prices averaged a 1.8% move on WASDE days, compared to 1.2% on non-WASDE days. Wheat prices averaged a 1.7% move on WASDE days, compared to 1.5% on non-WASDE days. Cotton prices averaged a 1.5% move on WASDE days, compared to a 1.3% move on non-WASDE days.
However, the soybean market has experienced a noticeable decline in WASDE’s importance in the past two years. Since the start of 2018, soybean prices have moved an average of 0.6% on WASDE report days, compared to 0.9% on nonreport days. From 2000 to 2017, the soybean market moved an average of 1.5% on WASDE report days, compared to 1.1% on nonreport days.
This drop-off could be explained by the increase in trade-related friction between the US and China, with soybeans being one of the main products serving as a political pawn. Because news on trade policy or tactics has come at irregularly scheduled times, and have a material impact on US export figures, it makes sense that the balances produced by WASDE have become less important in recent years.
The next WASDE will come out on Aug. 12. Traditionally, the August WASDE has been a major market-moving report, mainly because it was usually the month when yield estimates closely converged upon the USDA’s final yield for the year. Since 2010, the July WASDE yield forecast averaged a 7.7-bushel-per-acre difference from the final yield, August averaged a 4-bushel-per-acre difference, and September averaged a 3.1-bushel-per-acre difference.
Early-season yield estimates are based on a weather-adjusted trend. In the past, the USDA would incorporate an Objective Yield Survey in its August WASDE, which used ground-truth data to greatly improve the accuracy of its yield estimates. This year, the USDA changed its practice, and the first Objective Yield Survey won’t take place until September.
This year’s August WASDE is still expected to be extremely important for other reasons. Because heavy rains and floods this spring prevented or delayed planting of many acres, the planted area survey in June didn’t accurately measure acreage for major crops. The USDA’s National Agricultural Statistics Service (NASS) resurveyed farmers in much of the Corn Belt in late July to collect more accurate data on acres planted. This updated information will be released in the August Crop Production Report, which is incorporated into WASDE.
Gro Intelligence’s crop yield models, which update forecasts daily, rely on a range of satellite and earth-based inputs and machine-learning technology. At the same time, WASDE and NASS data are vital to Gro’s yield modeling efforts; our US models are trained using county-level NASS yields. With the vast resources available to the USDA, the final yield number the department issues in its January report is the industry standard—what all private forecasters are trying to predict.
August is when the Gro Corn Yield Model becomes particularly useful. The error rate between the WASDE and Gro yield estimates narrows substantially in August. As crops reach full maturity, satellite imagery of greening and development becomes more accurate. The average forecast error for Gro’s Corn Yield Model since 2000, including both live and backtest data, falls from 7.6 bushels per acre at the end of June to 4.3 bushels per acre in mid-August. Gro’s models also provide county-by-county yield estimates, whereas the USDA only reveals county-level data the following March.
Reports of WASDE’s demise have been greatly exaggerated. Despite questions about the viability of July’s numbers, the USDA’s long-standing flagship publication still matters to agricultural markets. A Gro analysis underscores WASDE’s critical role, finding that volatility on WASDE report days compared to nonreport days has held steady over the last 20 years.
Using history as a guide, market participants should recognize the impact the report has on futures prices, especially during the coming US harvest season. Traditionally, WASDE reports in August and October have been some of the biggest market-movers.