This Week in Ag (September 13)

WASDE figures released, but limited market response.

Fundamental

In the trading hours following the release of updated WASDE numbers, the corn and bean markets behaved in classic “buy the rumor, sell the fact" fashion, moving lower immediately following the update. In corn, a 1.3 bushel per acre reduction in US yield versus August estimates was offset by an upward revision to acreage, leaving total production virtually unchanged. Bean yields were reduced slightly, as were estimates for crush and exports, resulting in a 25 million bushel reduction in 23/24 projected ending stocks.

In cotton, the impact of hot and dry growing weather was reflected, with production estimates being cut by 860,000 bales, but some of that impact was mitigated by a backward revision to carried-in stocks and a decrease in 23/4 export projections. The net result is as an ending stock forecast of 3 million for the US, which would be the lowest in the last seven years. US wheat supply and demand were virtually unchanged, but the global wheat outlook was tightened, with reductions to production in Canada, Australia, the EU and Argentina creating a 7.0 million reduction in projected ending stocks.

The direction of the USDA’s yield revisions was consistent with recent market chatter, but the magnitude was smaller than expected or offset by revisions in stocks and usage, so that the overall impact was muted.

Whatever the figures, the market seems to be reflecting a belief that US corn and bean crops are essentially ‘made’, taking some risk premium out of prices. Wheat showed small increases on the reductions in foreign production and cotton posted a higher close, though still below last week’s high of 90 cents. From a fundamental perspective, the cotton and global wheat tables have the most constructive environment, based on projected ending stocks, but demand concerns across the whole commodity space remain.

Technical

Markets stayed on their technical trends in the period leading into the WASDE report – lower for wheat, consolidating for corn and soy, and confronting overhead resistance in cotton. The immediate impact of new fundamentals hasn’t been enough to deflect from those paths. Market watchers will be looking to see if corn is likely to bounce off recent lows ($4.75) and if cotton will push above recent highs (90 cents). The only new tech signal showing is an oversold market for wheat, which helps explain its post-WASDE bounce and could play a part in turning the downtrend there.

Macro

Two signs to point to in the macro picture. The strength in USD (which tends to pressure commodity prices) seems to have plateaued, while petroleum prices continue to increase (up $2.20 for the week). A continuation of these patterns would help to ease concerns about global ag demand. With the supply side benchmarks now in place with new WASDE figures, building confidence in the demand base would seem to hold the key to future action.

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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