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Wasde reports - how to read them

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The US Department of Agriculture's monthly Wasde report is a key event for agricultural commodities investors.

The USDA's estimates for grains and oilseeds, especially, are taken as global benchmarks.

And the Wasde [World Agricultural Supply and Demand Estimates] reports give the latest forecasts - often sparking large changes in commodity prices in the process.

As far as the global balance sheet goes, Wasdes give figures for corn, coarse grains, cotton, rice, soybeans and it products [soymeal and soyoil], wheat.

Domestically, they give estimates for these commodities and for a few others on top, including sugar, eggs, meat and dairy.

Focus of attention

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It is these that figures that are compared to consumption forecasts to form the stocks-to-use ratio – a crucial pricing metric.

A low stocks-to-use figure means thin inventories, implying tough competition for supplies, and elevated prices. When supplies are generous, buyers don't need to go chasing them, and pay up.

So, in theory, if the USDA, in the Wasde, cuts the inventory number, prices should rise. If a Wasde raises inventories, the report should sent prices of the commodity falling.

Important comparison

However, investors will, to a large extent, be able to assess from the newsflow which direction Wasde estimate revisions will go, and price that into markets well in advance.

The gap between these expectations and the numbers the Wasde comes up with are the real drivers of prices after the reports.

The importance of Wasdes means that analysts issue a barrage of pre-report "estimates of the estimates" in the week before the briefings.

What is important when analysing a Wasde is to compare the figures in the report with those that these commentators had expected – with the consensus estimate and the range of estimates, as published by Bloomberg, Dow Jones and ThomsonReuters.

Wasde cycle

However, the assumptions the USDA uses in making its stocks forecasts, figures for factors such as crop yields, or planting areas, can have a big impact on prices too.

Investors should also be aware that different Wasdes carry their own characteristics.

The May report, for instance, brings the opening estimates for a particular season, eg 2013-14, for all crops.

January Wasdes publish final estimates for US crops, while December reports are typically quiet, seeing no changes in domestic production data.

USDA Wasde reports can be found here

By Agrimoney.com

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