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Bearish Tone Continues Post-WASDE Report

Author: Doug Christie

Fundamental: Markets worked lower following the WASDE reports with 3-5% declines in grains while cotton managed to post a slight gain. USDA reported a record US corn crop of 15.3 billion bushels and a 31 million bushel increase in year-over-year stocks despite projecting higher usage of corn both domestically and globally. US soy updates showed a 35 million bushel increase in US production and ending stocks. In wheat, the most meaningful changes were in the global balance sheet where increases in current and past figures for Ukraine led the way to a 2 million metric ton increase in projected ending stocks for 2023/24.

Technical: Commitment of Traders reports reflect the bearish sentiment of the managed money segment. Corn net short position grew by 33,397 contracts while the soy net short grew by 19,619 contracts as of Jan 9. Both moves were accompanied by increases in Open Interest – 20,611 contracts for corn and 44,148 contracts in soy. Moving average signals are not as compelling but are still on a bearish signal. The strongest argument on the bull side is the current highly oversold relative strengths indicator in corn and soy. Cotton also showed an increase in managed money shorts, though the position is not as extreme. Cotton seems to be getting some tech support from having breached the 50-day moving average last week. Moving average and relative strength indicators for wheat are neutral.

Macro: Moves in outside markets were modest this week with petroleum prices flat while the USD strengthened by .7%.

With current supply environment markets will be on the defensive. Feels like it will take a visible resurgence in demand or a reversal in speculative sentiment to sponsor a turnaround.