In February, the USDA released both the “long-term projections” and the 2014/15 first wheat and corn marketing-year supply and demand projections. These projections were based on historical data and computer models, which may not be as reliable as estimates based on survey data (monthly WASDE reports are based on survey data). Given the dramatic shifts in the market, USDA’s projections based on historical data may either be fact or fiction.
The USDA projected that the 2014/15 marketing-year average price will be $5.30 compared to the projected 2013/14 marketing-year average price of $6.80. For the five-year period June 2014 through May 2018, the USDA projected that the national average wheat price will be $4.60. These prices are based on five-year (2014 through 2019) projected average ending stocks of 731 million bushels.
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During the last five-years, U.S. wheat ending stocks have averaged 771 million bushels, and prices have averaged $6.48. When average stocks are projected to be 731 million bushels, and the price is projected to average $4.60, something does not add up. Lower stocks should not result in $1.88 ($5.48 - $4.60) lower prices.
Having lower stocks and lower prices is not unprecedented. In the 2012/13 wheat marketing-year, U.S. wheat ending stocks were 718 million bushels, and the average annual price was $7.77. In the 2013/14 wheat marketing-year, ending stocks declined to 558 million bushels, and the average annual price declined to $6.80, a 97 cent price decline.
The explanation for the lower stocks and lower prices may be that during the 2012/13 wheat marketing-year, corn stocks were historically low, and the demand for wheat by the feed market added about 85 cents to the price of wheat. Take away the low corn stocks’ impact and the lower average wheat price can be explained.
The USDA projects average annual corn prices to decline from $6.89 in the 2012/13 marketing-year to $4.50 in the 2013/14 marketing-year, and then to $3.90 in the 2014/15 marketing-year. Corn ending stocks are projected to increase from 821 million bushels in 2012/13 to 1.48 billion bushels in 2013/14, and then to 2.11 billion bushels in the 2014/15 marketing-year. The corn price relationship between projected ending stocks and prices are consistent with economic expectations.
However, during the five corn marketing-years 2014/15 through 2018/19, corn ending stocks are projected to average 2.57 billion bushels with an average price of $3.52. Given that $3.52 is currently below corn’s variable costs of production, this scenario may also be fiction.
A problem may be that per acre production is projected to be 165.6, 167.6, 169.6, 171.6 and 173.6 bushels for the marketing years 2014/15 thorough 2018/19, respectively. The record per acre corn production, set in 2009, is 164.7 bushels. The five-year average (2008 through 2013) corn production per acre is 149.4 bushels, and the 10-year average is 150.9 bushels per acre.
In the long-term projections, the USDA projects corn planted acres to decline from 95.3 million acres in 2013 to 88 million acres in 2018. It is possible that underestimated planted and harvested acres will be offset by overestimated yields and the production estimates end up relatively accurate.
When someone predicts prices, yields, production, or stocks, only one thing is known with certainty. The projection will be wrong. The result will either be above or below the projections.
Weather will be the major determinate of production and price. And we know how accurate meteorologists are. Still, we listen to them every day. Weather information is essential in the planning process.
So it does not matter if USDA’s projections are fact or fiction. What matters is that we evaluate the projections, make our own projections, and make plans accordingly.