Markets Mostly Strengthen Following WASDE Report

Author: Doug Christie 

Fundamental: All four of the markets tracked here posted positive results across the five-day trading period. 

USDA reports released November 12 were bearish on the surface, with larger supplies penciled in for US corn, soy, wheat and cotton. But, as is often the case, the markets digested this news and eventually moved higher in the days following the reports themselves.

Traders seem to believe the increased US supply was largely factored into prices and have turned their attention to South American production prospects and the overall demand outlook.  

Harvest pressures are abating, with the soy and corn harvest nearly finished and cotton two-thirds complete as of November 13. South American crops continue to show good potential, but with a long way to go before harvesting, some risk premium is justified.  

On the demand front, strong soy meal and oil consumption is supporting the bean complex. Corn and wheat price gains were more modest, with demand signals mixed in those crops. Cotton has been able to recover somewhat from recent lows, with a second straight week of healthy US export sales.  

Technical: Tech indicators are not as strong as last week. Soy moving-average signals remain on a buy, while corn and cotton show as a sell and wheat is flat. Momentum indicators have also moderated, although soy shows as slightly overbought and cotton slightly oversold.

COT reports, which still reflect pre-WASDE positions, showed an increase in open interest in both soy and corn, with little change in wheat and cotton. More notably, managed money increased its corn short and soy long going into the report period, while cotton showed a reduction in net managed money longs to coincide with the price drop in early November.  

Macro: Outside markets have been supportive, with crude rallying and the USD softening. Financial markets have also posted gains, helped by a favorable October inflation report in the US. All of this has been helpful for ag markets, where demand outlook has been a concern. 

Trading strategy is based on the author's views and analysis as of the date of first publication. From time to time the author's views may change due to new information or evolving market conditions. Any major updates to the author's views will be published separately in the author's weekly commentary or a new deep dive.

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