Todd's Take

The Case for Monthly USDA Grain Stocks Reports

Todd Hultman
By  Todd Hultman , DTN Lead Analyst
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This year has been full of surprises for corn prices, some bearish and some bullish. The latest surprise came from NASS's Grain Stocks report, released Wednesday, Sept. 30, which was both unduly bearish and bullish. (DTN ProphetX chart by Todd Hultman)

It is strange how the surprises of 2020 continue to emerge from some of the most unexpected places. This year's global pandemic still seems like something out of a science fiction movie.

We expect weather to hold some kind of surprise for markets each year, but after corn and soybean crops posted such high good-to-excellent crop ratings in early August, no one expected December corn to rally 60 cents a bushel into September. A combination of the Aug. 10 derecho, extended stretch of hot and dry weather and a sudden interest in buying from China all turned market sentiment in corn from bearish to bullish quickly.

Wednesday's USDA reports of lower-than-expected corn and soybean stocks totals for Sept. 1 were this year's latest surprises. After NASS went back and reduced the June 1 corn stocks estimate from 5.224 billion bushels (bb) to 5.019 bb, the Sept. 1 corn stocks total fell to a less-than-expected 1.995 bb and December corn rallied 14 1/4 cents on the news.

In an attempt to answer questions after USDA's report on Twitter, the National Agricultural Statistics Service (NASS) Chief of Crops Branch Lance Honig offered this explanation of the June revision:

"Once the marketing year is complete and we have measured ending stocks, we consider all information available for the season to adjust previous quarter stocks as needed. We also receive some late data."

He also added, "The previous quarter stocks estimates are always open to revision. This allows us to incorporate any new information we have since it was previously published."

As many on Twitter noted at the time, it was not a very specific response and we still don't understand why June corn stocks were originally reported 234 million bushels (mb) higher than analysts in Dow Jones' pre-report survey expected on June 30 and then suddenly revised 205 mb lower in September.

For me, the frustrating aspect of this is that I regard USDA's quarterly grain stocks reports as one of the most helpful pieces of market information USDA provides. These assessments of quarterly grain supplies are typically straightforward and easy to understand. They don't involve all the guess work that creates problems in World Agricultural Supply and Demand Estimates (WASDE) reports and actually serve as the market's main check and balance on the monthly WASDE reports.

We can be wrong about planting estimates, yield estimates and various demand estimates all day long, but it is difficult to go too wrong tracking actual inventory. If USDA says 62,534 producers and 8,400 commercial facilities reported 1.995 bb of corn on hand on Sept. 1, it is hard to argue.

One nagging question that won't go away is what is this additional information that Honig refers to? Once surveys come back in June and the data is tallied, what information would possibly change their mind about June 1 corn supplies?

Out of the 205 mb reduced in June, 158 mb were reduced from on-farm supplies. Did NASS receive answers to producer surveys after the deadline that caused them to lower their assessment? That strikes me as odd.

Did coronavirus play a part? Is it possible that with many working remotely, NASS found it difficult to keep up with the workload? Admittedly, I have no good insight and, unfortunately, NASS is not yet willing to show the kind of transparency needed to help us understand and have more confidence in the numbers.

This is a good time to mention that I was invited by the American Farm Bureau Federation in August to be part of a working group that gave suggestions to NASS on how they could be more helpful to agriculture. I appreciate being included and used most of my time asking NASS to consider the merits of providing grain stocks reports on a monthly basis.

Fresh from the controversy of Wednesday's report, it may seem odd that I would want NASS to do more of these reports, but here is how I see it: The number one reason for having government involved in agriculture is because we all have a stake in food security -- it is one important form of national security.

One of the most helpful ways NASS can help us understand where we stand in terms of grain supplies is to keep track of inventory on a regular basis. All the thousands of hours (or more) that go into making predictions in the monthly WASDE reports are largely inefficient compared to the use of time it would take to track actual inventories each month.

As mentioned above, it is typically the quarterly grain stocks report that corrects mistakes when WASDE estimates go wrong and we shouldn't have to wait three months for those corrections.

In the winter of 2019-20, many of us suspected USDA overestimated corn production and I explained to audiences that we were apt to see lower-than-expected corn stocks totals in the quarterly reports -- both confirming less-than-expected supplies and poor quality corn being consumed faster than usual.

The December and March corn stocks figures did come in below expectations, but USDA's ending corn stocks estimates did not get lowered as coronavirus hit prices in late February and overwhelmed market attention. Had we had a more accurate assessment of inventory on a monthly basis, I contend the lower supply situation would have been more quickly recognized and reflected in higher prices.

In the case of Wednesday's report, we may never know why June 1 corn stocks were initially reported 205 mb too high, but we all know mistakes will happen. Had the mistake been corrected in July rather than in September, it could have provided corn prices with much-needed support at a time when prices were being pushed lower.

We can all agree there is no perfect reporting process when it comes to assessing the fluid dynamics of a global grain market. Uncertainty will always be part of the equation. However, if South America's crops don't do well in 2021, we will head toward a time of extremely tight soybean supplies and keeping accurate track of domestic soybean supplies will be more important than ever.

Less guessing and more counting could help us all make better decisions tomorrow.

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Todd Hultman