Farm Food Facts

Understanding the World Agricultural Supply and Demand Estimate report

October 02, 2023 USFRA
Understanding the World Agricultural Supply and Demand Estimate report
Farm Food Facts
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Farm Food Facts
Understanding the World Agricultural Supply and Demand Estimate report
Oct 02, 2023

We had a chance to catch up with VP of Market Intelligence at United Soybean Board, Mac Marshall, during our Honor the Harvest Forum in September.  Mac gave us some major insight into the World Agricultural Supply and Demand Estimate Report and how farmers and ranchers can use this as a resource.

Listen in to this episode of Farm, Food, Facts now!

Show Notes Transcript

We had a chance to catch up with VP of Market Intelligence at United Soybean Board, Mac Marshall, during our Honor the Harvest Forum in September.  Mac gave us some major insight into the World Agricultural Supply and Demand Estimate Report and how farmers and ranchers can use this as a resource.

Listen in to this episode of Farm, Food, Facts now!

Speaker 1 (00:00):
We have a pretty valuable tool available to us that we probably under utilize as farmers and ranchers, and that is the World Agricultural Supply and Demand Report. I got the opportunity to talk with Mac Marshall. He's the Vice President of Market Intelligence at the United Soybean Board and US Soybean Export Council. He helps make sense of the WDI report from the soybean perspective. So, Mac, if you could first start off by sharing what is the World Agricultural Supply and Demand Report?

Speaker 2 (00:29):
Sure. So the, uh, world Agricultural Supply and Demand estimates are commonly referred to as WDI is the, uh, the acronym there. So it's a monthly report that's put out by the US government, by the Department of Agriculture, which gives an assessment of just that supply and demand for the major commodities, uh, that the US and other countries produce. So, working for the soybean board, I'm naturally looking at this very closely every single month when it comes out for updates to expectations of US crop size, uh, things that are happening on the demand side. Certainly in the soybean industry right now, we're going through a wave of crush capacity expansion. So seeing updates that are happening on that, uh, and adjustments in demand is of course, exciting. We also get information on exports, and you can see in the data, in the report itself, you know, where all of the countries around the world, like who the major consumers are of what commodity.

Speaker 2 (01:22):
And I think the data that comes out from the US government, uh, is, it's incredibly important, right? Every farmer in this country, every farmer globally, one way or another is a market participant. And the way that you participate in the market actively and knowledgeably is by leveraging the data that you have. And, uh, as a veteran of the federal statistical system, I worked in, in a statistical agency for seven years, you know, I can say that our, one of the, the benefits that we, we truly have in the United States is a, a free flow of, of information, um, you know, from from U S D A, which is essential for anybody involved in the value chain here. And, you know, with that, I think clearly it's coming across, I have a real appreciation for data and, you know, just as price discovery is important for how you're gonna participate in the market, and the WDI is something that is used for price discovery. When it comes out, there's a market response. Like if a crop is smaller than expected, you see prices go up if it, if, uh, there's a demand headwind from some major buyer, you might see prices go down and, and it covers corn, soy, wheat, rice, animal ag on a quarterly basis. So a lot of information there

Speaker 1 (02:33):
When these reports come out, it can be really intimidating. They're really long. Yeah. So when that report comes out, what's like the first thing that Max's looking at?

Speaker 2 (02:41):
So the first thing I jumped to and, and when I worked in the private sector and covered, uh, a number of different commodities and real primary focus on corn, that was, that was our, our, our largest business. You know, I'd go first to the, the corn tables, then to the soy tables and just kind of understand what the changes were from the prior month, you know, so now, you know, being a market analyst and commentator on soy markets, I go straight to page 15 and page 28. Page 15 has the domestic balance sheets. Page 28 has the international balance sheets, and it depends on the time of the year, right? We're recording this in September, uh, at, on the margins of honor, the harvest, uh, beautiful location here in Roston, Texas. And, you know, we had a supply and demand estimates come out yesterday, and what I was looking for in a September report is an adjustment to the crop size in the United States.

Speaker 2 (03:30):
Once we get to that August, September period, uh, we know a lot more about how weather performance is impacting crop development. August, you know, more germane for, for corn as it, you know, develops a little bit earlier in the production cycle in the us September's a little bit more relevant for soy and, uh, we saw a cut to yields there, uh, yesterday. Not unexpected. There had been a lot of weather pressure throughout, but being able to quantify how much that cut is and have a new estimate on the total crop size that adds additional intelligence and information to anybody who's observing the market. That's, that's certainly critical. There is a lot to digest, but like, once you get in the rhythm of looking at these reports and focusing on the key variables, it does become a little bit of second nature. And certainly one key variable that is always, always of note for these reports is, is the ending stocks figure.

One of the metrics that commodity analysts look at that has, uh, you know, material impact on price is the stocks to use ratio. There's generally a, a very strong negative relationship between stocks to use ratio, which is basically captive inventory divided by total use. So it's not just how much you have in supply, it's how much you have in supply that can meet existing demand. Right? So you look at that, that captive inventory figure and you know, if you have stocks come down 'cause you got a, you know, an issue with crop production or something, and that stocks to use ratio comes down, well, you typically see a price response there. We've gone through a lot of waves of this in the United States. Well, years ago we were very much in a supply glut position from soy, uh, emanating from in large part the trade war.

Speaker 2 (05:03):
But in the years since then, as we've had demand creep back up as the world's come back outta COVID as, as you know, we've leveraged more and more international market development. And as we've seen this wave of crush come online in the United States, you know, those demand side figures have, you know, eaten into that pile that we had a couple years ago. And so that's part of the reason that we're seeing significant prices here. I'd say the biggest thing is if you're looking at fundamental analysis and you want to understand why prices are doing what they do and look beyond, uh, you know, what might be happening at the neighbor el neighborhood elevator, um, it's, it's a great tool for looking at that and understanding not just what's happening in the US but in other, in other markets too. Because once we've got harvest going here, planting is going on in South America for soy. So, you know, there might not be anything happening in the US crop in February, but there absolutely is in South America. So you gotta, you gotta think about things seasonally here too.

Speaker 1 (05:56):
So from the farmer level, when they see these reports coming out, should they, you know, if, if South America's planting at that time, should farmers here be changing their game plan if things aren't going as planned down down south? 

Speaker 2 (06:09):
Well, it's an interesting thing because you actually see that reflected in the market. So take last year for example, or really the last two years, so in the 21 slash 22 marketing year, uh, for soy, Brazil had had a really rough time in the crop and lost maybe 15% of its expected production. Brazil is the largest soybean producer in the world. So when you have a cut of that magnitude, it's pretty substantial. And you do see that reflected in commodity market prices. Since soy is a globally traded commodity, those reductions in production in Brazil, you know, have an influence on the price that farmers can sell their soybeans for in the United States. So this past year, Argentina had a crop failure that certainly, uh, took a lot of soy out of global balance sheets. Brazil had a good crop that offset a, a good chunk of it.

Speaker 2 (06:54):
But overall with that supply tightness in Argentina, that had, you know, material impacts on overall soy markets as well as, uh, soy co-product markets specifically, uh, meal and oil, you know, Argentina's the largest exporter of both. And when it's not able to grow as much soy and then process as much soy, it can't export as much, uh, of, of value added soy products, uh, in, in the form of meal and oil. So you see those markets rise as well, and that's part of the reason too, that we've seen, uh, an uptick in meal exports this past year outta the United States. So it's all integrated. Agriculture is something that really does no matter where we are in the world or where we are in the value chain, whether, you know, we're a farmer or, uh, a consumer who's never set foot on a farm, it is something that ties us all together and the impacts, uh, of something on the other side of the world, uh, in the world of ag do come back no matter where you are.

Speaker 1 (07:49):
So this report comes out once a month, we see something in the report, should we panic <laugh>? You know, what should we do when we see something that we're like, oh no, things aren't headed in the right direction. 

Speaker 2 (08:01):
I think anytime you're analyzing data, the really important thing to do is think about signal and noise. Signal and noise. What you wanna do is take it in a greater context. Okay. There are plenty of times where analysts will second guess some of the numbers that come out. We might have had, as an example, I'm just making this up, might have had really, really intense drought pressure, but you only see like a very, uh, insignificant cut in, you know, expected yield or expected production. And, you know, as a producer maybe, you know, it's like, hey, the impact was a lot worse than that, but there might be like an additional cut next month, right? So like even if something does seems amiss in the near term, you have to take a longer term context around it. And, and I think that beyond the, was or beyond market data, I think just data in general that's incredibly important.

And on farm, you know, farmers generate an absolute cornucopia of data, not just food and, and and, and uh, agricultural products, but data as well. And that's a new currency that truly is a new currency. It's a new asset that that farmers have, and it's an asset that's existed. But being able to harness it and the recognition of the value that it has for making better optimized decisions on farm for, you know, proving that you're implementing, you know, sustainable farming practices, that an increasing, you know, share of the consumer voice is clamoring for, you know, if you're doing those things, you know, you get, you know, and you have the data and validation to back it up, that's an opportunity for a revenue stream and it's also an opportunity for continuous improvement of your operations. And if there's anything that I've come to know about the American farmer, it's that continuous improvement is absolutely part of the lifeblood.

Speaker 1 (09:46):
I love that you're thinking outside of the box, and that's another way that farmers can be looking at trying to bring in new revenue. The one thing is that makes me a little nervous when you say it. I, I do see a lot of optimism in it, but protecting that data, that's something we don't want that to get into the wrong hand. Absolutely. So what should farmers be thinking about if they are gonna be sharing that data? 

Speaker 2 (10:06):
I think just as anything else, like as a consumer, I, I personally wish I had more data, data privacy rights, um, because it, like I said, data's a currency. It, it's an asset, it's an asset with value, and you never want to give away an asset with value, whatever it is, whether it's a physical commodity or whether it's a derivative of commodity or you're talking about, you know, data, which is effectively measurement of other things that you're doing. You know, I think approaching various, you know, programs that are, you know, looking to leverage the data or, you know, recognize where they are in the whole, you know, ecosystem here, recognize that you are the controller and owner of your data. So try to get the most value out of it and, and protect it as best you can. Mm-hmm.

Speaker 1 (10:51):
What do you think the future of data, or even just reporting in general, what trends are you gonna be following in the future?

Speaker 2 (10:58):
Well, I think, you know, one thing that has absolutely been prevailing, you know, for a longer term now is, um, is, is is just, you know, massive and massive data sets, right? That you can continue to layer, or someone referred to data sets earlier today is, is malleable data sets that you can bring together. So, you know, inter relating things that are seemingly, you know, not related at all in, in terms of two different data sets. I, I think is, is, uh, you know, one thing that we're gonna see more and more evolution of there, there's one thing that I've, I've always said about data, and this kind of goes back to, uh, you know, I guess some like microeconomic principles, which is, you know, you have a law of diminishing returns, right? Like when you're, for each additional unit of output, you know, at a certain point you're not getting as much back on it.

Speaker 2 (11:46):
I think data actually follows a different model, right? Data is one thing where I could have a thousand points of data and I had a thousand in first point. It's made those initial thousand points incrementally more valuable because it's another point that either refutes or validates the patterns that I've seen in the data before. It makes every other data point that much more valuable. So I think that there's an implicit recognition of that fact, which is why, you know, companies and consumers and everybody is, is searching. I I think very proactively for how much more data can be generated out there, uh, that you can make claims against or that you can find ways to monetize and, um, it's just gonna continue evolving that way. Ones and zeros

Speaker 1 (12:28):
Great insight from Mac Marshall. He's the vice President of Market Intelligence at the United Soybean Board and US Soybean Export Council, we appreciate your precious time. And if there's a topic you'd like to hear, just email me at I'm Joanna Guza for Farm Food Facts.