Using AgFlow to Analyze WASDE Reports
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The Worldwide Agricultural Supply and Demand Estimates (WASDE) report stems from the need to build global balance sheets for Agricultural products. Every month, the USDA (United States Department of Agriculture) releases an update on this report, providing all the statistics for supply and demand calculations country by country.
WASDE readers usually focus solely on production, area harvested, and yield, while other statistics, like beginning stock or FSI consumption, are often overlooked. Although production, area harvested, and yield make for a quick estimate of a country’s balance sheet, they do not provide the complete picture, and much insight is lost.
The Anatomy of WASDE Reports
There are 19 different metrics provided in WASDE reports, depending on the type of commodity. Each describes a specific statistic covering the previous, ongoing, and coming crop years.
Beginning Stock (in mt):
The Beginning Stock statistic is the volume of the crop available in stock at the beginning of the marketing year, as reported at the time. This statistic is important to know how much carryover will be added to the production.
Area Harvested [Grains & Oilseeds Only] (in ha):
The total Area Harvested for a given crop is often called acreage. However, the standard unit is in hectares (1 ha ~ 2,471 acres).
Production (in mt):
The Production is the total weight (often called volume) of crops harvested. This is the measure of the direct local crop supply, excluding beginning stock and imports.
Yield [Grains & Oilseeds Only] (in mt/ha):
The Yield is, in a way, a density measure. It provides the number of tons produced per hectare. This statistic is used to understand the efficiency and/or the quality of harvested crops.
Imports (in mt):
Imports are the total amount of a given crop imported by a country.
Trade Year Imports (in mt):
Trade Year Imports differ from imports in the way they are calculated. Imports are based on the calendar year (1st Jan – 31st Dec), whereas trade year imports are calculated over twelve months starting from the first day of trade for a given product.
Total Supply (in mt):
The Total Supply is the addition of all available supply over the calendar year with the beginning stocks, the production, and the imports. This statistic is useful for calculating whether the supply line is ample or tight compared to the demand.
Exports (in mt):
Exports are the total volume of goods being sold and shipped to other countries.
Trade Year Exports (in mt):
Similar to the Trade Year Imports, this statistic measures the export volume from the first day of trade over twelve months.
FSI Consumption [Grains Only] (in mt):
Food, Seed, and Industrial (FSI) Consumption represents the share of supply used for human consumption.
Food Use Domestic Consumption [Oilseeds & Vegoils Only] (in mt):
This statistic records the local use of a given vegetable oil for food consumption, including industrial food production.
Industrial Domestic Consumption [Oilseeds & Vegoils Only] (in mt):
The Industrial Domestic Consumption measures the local share of a vegetable oil used for Industrial purposes (such as Biofuel), excluding industrial food production.
Feed Domestic Consumption [Grains Only] (in mt):
The Feed Domestic Consumption measures the volume of crops used for animal feed locally.
Domestic Consumption (in mt):
Domestic Consumption equals the total local consumption of a given crop. It is the sum of all the Consumption metrics, and It helps to determine the share of local use of a crop.
Crush [Oilseeds & Vegoils Only] (in mt):
The Crush is the volume of oilseed used and processed in factories to produce oil and meal byproducts.
Extr. Rate, 999.9999 [Oilseeds & Vegoils Only] (in %):
This statistic is the extraction rate of an oilseed crush byproduct—meal or oil. There are byproducts and waste in each crushing process, and each Oilseed has specific crushing byproducts extraction rates.
Feed Waste Domestic Consumption [Oilseeds Only] (in mt):
Feed Waste Domestic Consumption measures the local consumption of the crushing process waste created and used for animal feed.
Ending Stock (in mt):
The Ending Stock is the expected crop volume available at the end of the marketing year. Therefore, it equals the Total Supply minus the Domestic Consumption and Exports. Its purpose is to calculate the following year’s Beginning Stock and estimate whether supply lines are ample or tight.
Total Distribution (in mt):
The Total Distribution measures the Total Supply volume distributed either for direct consumption, exports, or storage. In theory, it should be equal to the Total Supply, barring exceptional circumstances leading to losses such as a cargo catching fire or a shipwreck.
The anatomy of the WASDE report reveals that all these statistics are linked together, each covering a different aspect of the balance sheet. As such, focusing only on some statistics while overlooking others can lead to making decisions based on false or misinformed assumptions.
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Why It Is Crucial to Look at All Statistics in WASDE Reports
The Argentinian Soybean market study: at first glance, the strong La Nina effect resulted in droughts, leading to lower Soybean production. On top of that, due to the Covid-19 pandemic, the crushing industry is limited in capacity, and more than half of all facilities are closed.
Figure 1: Argentina Soybean WASDE Statistics for Production, Area, and Yield
First, by analyzing the production, area harvested, and yield statistics, one can wonder about the 20/21 marketing year’s supply capacity to meet the demand. Indeed, the harvested area didn’t change while the output decreased by 1.3 Mmt, and the yield is falling accordingly. This situation raised concerns for the Argentinian Soybean market, as crop quality also weighs in the balance. However, Soybean Meal and Oil exports continued and even increased, with April 2021 exports three times as high as the previous year.
Figure 2: Argentina Soybean WASDE Statistics for Beginning Stock and Crush
Digging deeper, the Beginning Stock in the 20/21 marketing year was the second-highest in seven years with 26.70 Mmt of Soybean carryover. Additionally, the local Crushing output is estimated at 41 Mmt, 3.3 Mmt more than the previous year.
Therefore, focusing only on the production, area, and yield could mislead one to think that stocks and crop quality decreased compared to the previous marketing year. With the quality and pipeline issues in mind, one would be cautious as Argentinian shipments’ appear as not guaranteed, unjustifiably so. Effectively, traders lost the incentive to export Argentina Soybean Meal because of the perceived low crop quality and overly tight supply line.
However, looking at the Beginning Stock and Crushing volume, the crop supply is actually ample enough to meet the demand, allowing crushing facilities to provide in reality enough Soybean Meal and Oil to maintain export volumes.
A trader who would have not only looked at Production, Area Harvested, and Yield but also at the Beginning stock and Crushing volume would have immediately identified arbitrage opportunities. An example of such an opportunity could be using the lowered prices of Soybean Meal to store the cargo and ship later, betting on a bull spread to increase the margin. In another way, buying more Soybean Meal volume would reduce the shipping costs by loading on a larger vessel.
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In a Nutshell
WASDE reports contain much information, with more than a dozen statistics available and updated monthly. However, most of the data is often overlooked in favor of the Production, Yield, and Area Harvested.
By digging deeper into the report, traders and analysts benefit from a sharper understanding upon which they can formulate sound strategies; or, worst-case scenario, confirm their first assumptions.
With AgFlow, traders and analysts can access a tool that allows them to:
- View a summary of all the WASDE statistics over the last seven marketing years in an easy-to-read table format
- Select any combination of three variables to Intuitively generate a custom time-series line plot
The current version of AgFlow’s Supply and Demand tool is tagged as static, meaning that it updates monthly as soon as the newest WASDE report is available.
A future live version of the tool will provide a timely, accurate, and global vision of Supply and Demand. This new version will include daily AIS shipment lineups, quality metrics, prices, and other datasets to compare with reports like the WASDE, making it easy to track daily commodities flux, unveil correlations between statistics, and even predict global balance sheets moves.
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Read also: Are Argentina Soybean Crush Exports at Risk?