Every month the World Agricultural Outlook Board (WAOB) updates supply/demand estimates for a number of crops. Using a variety of data sources to compile the forecast and projections, the work of economists is focused on by governments, marketers and producers. The changing of a single digit or decimal point can make or break a market player.
And, since so much can be lost or gained, anyone who believes the numbers are even slightly out of line is unlikely to hold his tongue.
Early in July, the WAOB raised estimates of soybean exports to 1.03 billion bushels. It revised ending stocks upward to 155 million bushels. It did that by lowering residual use because quarterly survey data showed more soybeans on hand than originally thought.
On the heels of that report, and spurred by marketers and farmers, congressmen from farming states had some questions for economists in the employ of the government.
“The first issue needing to be addressed is simple,” says Jim McCormick, an Illinois-based marketer (McCormick, through a marketing newsletter, helped fuel the queries). “The government raised exports to 1,030 million bushels. But we've sold — they haven't been shipped yet, but the intention is there — 1,076.5 million bushels of beans. So why are they saying we're only going to export 1,030 when we've already sold over 1,070? Why can't they get ahead of the curve? Farmers have a legitimate gripe with this.”
With such tightening of supplies, the soybean market should be bullish, claims McCormick. Instead, farmers are actually facing falling prices. While export sales are friendly, the market is selling off.
“They're saying, ‘It doesn't matter how much we sell now because there's a huge crop coming on line.’ Within another couple of months new beans will be coming in,” says McCormick.
“But if we shipped out everything we sold as of year to date, the carryout — instead of the 155 (million bushels) the government is currently listing — would be 109 (million bushels). Historically, the tightest bean stocks we've had since 1980 was 131 (million bushels) in 1996. In the summer of 1996, beans topped out at $8.25. The fall low was made on Nov. 1 at $6.59. Today, old crop beans are trading at $5.75 and new crop is at $5.17.”
McCormick says the second question needing to be asked involves the May crop estimate of ending stocks. Since 1995 on, the difference between what was cited in May and what ending stocks actually were is “amazing,” he says. “I don't expect them to be totally accurate. That's impossible. But they've got to do better.”
Regarding export statistics, there are few easy answers because the system is terribly complex. In working their craft, it is obvious that agricultural economists rarely have an easy day. Easy days would require clean numbers coming to their desks — a near impossibility considering trade laws, unpredictable foreign governments, and a bevy of other issues. Pressure to scrub the data and present proper reports is immense.
In deciphering the complexity, the first thing to know is there are three measures (or measurers) of exports.
“The one we track is the Department of Commerce trade numbers (commonly called census numbers),” says Keith Menzie, WAOB oilseeds specialist. “We use the census numbers because they are the official trade numbers of the U.S. government. The other numbers issued are both from the USDA. One is grain inspections and the other is export sales issued by the Foreign Agricultural Service (FAS).”
The three groups compile and publish independent of each other based on sources from different points in the export chain. Menzie says a simple analogy would be three people measuring the temperature in different parts of the city and getting different answers. Part of the difference is due to different definitions, measuring different things, and measurement errors.
Another thing to keep in mind: the word “sales” is totally separate from the word “exports.” You can have sales made that have yet to be shipped out of the country.
“The Department of Commerce numbers are supposed to be a census of all activities — all boats leaving port, all planes carrying cargo. It is important to examine the census data at the end of each marketing year to be sure all shipments are included in the proper year,” says Mark Harris, chief of the NASS Crops Branch.
As you get into July and August, several things can happen to reported sales, says Menzie. One, they can be shipped. Two, they can be rolled into the new marketing year. Or, three, they can be cancelled.
“You have to be careful with the soybeans that haven't been shipped,” he says. “We're into August and there's about 60 million bushels outstanding.”
And here's yet another issue: historically, the census numbers run below the other two sources of exports. That's even when the marketing year is finished and shipped soybeans are counted while outstanding sales are no longer an issue.
“So, if you use the FAS numbers instead of the official census number, you'd think you would have lower ending stocks,” says Menzie. “But, stocks are surveyed not calculated. We're not going to do arithmetic to find out how much stocks are there, we're going to use the NASS survey-based estimate.”
And while compiling that number, the NASS works under secure conditions and won't ask Menzie or his colleagues anything about projected stocks level.
“They're just going to go out, survey the country and report the stocks. So it doesn't make any difference whether the exports are 1.084 (billion bushels) or 1.03 (billion bushels) — the stocks will be what they are regardless.”
The residual category
The “unaccounted use” — or “residual” — category is where adjustments take place.
“Let's look at 2001-02, “says Menzie. “In that year, export sales reported 1,100 million bushels exported. But census reported 1,064 million bushels, a difference of 36 million bushels. That means the residual needs to be 36 million bushels higher than the balance sheet using export sales. So the residual has the missing exported bushels.”
Reasons for discrepancies are legion. The important thing, say both government analysts, is to use the correct residual.
“You've really got to decide which data series to use. In truth, the census data has a couple of months lag. So WAOB uses export sales relationships to help project census numbers. But you can't directly replace the export sales number with the census number since they don't line up,” says Harris.
Auguring the market
In July, Menzie was still projecting the export number. To illustrate the difficulty of auguring the markets, he points to a key example of unanticipated occurrences just this year.
Last year, China imported about 375 million bushels of soybeans. This year, the country's imports jumped to around 675 million bushels — a massive increase.
Chinese policies are difficult to predict, says Menzie. As an example, around March 2002, the nation suddenly became skittish about GMO crops and shut off imports almost entirely for several months. Just as abruptly, it kicked back on again.
“We get 40 to 50 percent of the Chinese market. So when they jump 300 million bushels, that skews expectations. We started at around 500 million bushels for China. As China's imports grew rapidly, the U.S. soybean export forecast had to be adjusted,” says Menzie.
And, then, says Menzie, there is the soybean production expansion in Brazil and Argentina. The countries' embrace of the oilseed has destroyed the historical price relationship between ending stocks in the United States and market prices.
“Despite relatively low stocks in the U.S., we are seeing prices far below what we saw in 1996 when stocks were equally as tight,” says Menzie. “This is because the market knows that alternative supplies are available.”
And that, he suggests, may be part of the reason some analysts and many farmers have been disappointed with soybean prices in recent years.