The 4th of July is all about fireworks – and that’s what we got out of the big USDA report last Friday.
Of all the reports issued by the US Department of Agriculture on Friday, the acreage report was the most impactful.
Soybean-planted acres came out at 83.5 million, 4m acres below the most recent World Agricultural Supply and Demand Estimates (WASDE) report. At current projected yields, that would imply a reduction of more than 200 million bushels in the expected crop size. Corn acres came in at 94.1m acres versus 92.0m in the previous WASDE. Although it was only a 3% reduction, the corn market also reacted strongly and is now trading $1.27 lower than it was going into the report, while beans have gained nearly a dollar.
Planted-area changes in corn are always going to be more critical, given that corn yields 3.5 times more than beans per acre. Wheat and cotton acreage estimates were in line with pre-report expectations and market reactions in both were mild. Grain stocks reports skewed modestly to the bear side, with figures for beans, corn and wheat all slightly lower than estimated.
With acreage and stock estimates established, forecasting yield becomes the key variable in the supply-side equation. Crop condition reports from July 3 showed corn and beans basically unchanged, which matched market expectations with last week’s moderating weather. Forecasts for the 6-10 day period should support the idea of stabilized yields. Cotton areas saw continued heat and dryness in Texas and heat and rain in the Southeast.
While fundamentals have been the big driver over past few days, there are a couple items of note from the tech side. The break in corn produced a bearish cross of 10- vs. 25-day moving averages, while the rally in soy produced a bullish version of the same. The downward move in corn has that market back to an oversold condition, with the Relative Strength Index (RSI) showing 33. The break in corn prices has also come with an increase in open interest, suggesting new short-side participants. In soy, the run-up has not coincided with an increase in open interest, which one would like to see for a truly bullish market. The most recent Commitment of Trader reports showed a reduction in managed money longs in corn, which coincided with the price correction, while the soy market showed a net increase in managed money longs over the same period.
An atypical week for macros with market holidays. Stocks closed the month with a strong performance, so maybe the US economy is gaining a foothold. Global oil prices posted gains, but not as much as might have been expected with OPEC’s announced intention to throttle back production. If petroleum is the best proxy for overall commodity demand, the market sentiment right now seems to be “prove it”.
This content is for educational purposes only and is NOT financial advice. Before acting on any information you must consult with your financial advisor.