***This commentary is provided for descriptive and entertainment purposes only and is not intended to be used for specific trading strategies or interpreted to be investment advice. *****
WASDE Estimates for May/June
Supply:
Planted Acreage (million acres): 88/88
Harvested Acreage: 81/81
Yield (Bushels/Acre): 174/174
Beginning Stocks (million bushels): 2,182/2,182
Total Production: 14,040/14,040
Imports: 50/50
Total Supply: 16,272/16,272
Planted Acreage (million acres): 88/88
Harvested Acreage: 81/81
Yield (Bushels/Acre): 174/174
Beginning Stocks (million bushels): 2,182/2,182
Total Production: 14,040/14,040
Imports: 50/50
Total Supply: 16,272/16,272
Consumption:
Feed and Residual (million bushels): 5,375/5,350
Other Food, Seed, and Industrial: 7,115/7,165
Exports: 2,100/2,100
Total Consumption 14,590/14,615
Ending Stocks (million bushels): 1,682/1,577
Ending Stocks/Total Consumption (%): 11.53%/10.79%
Model Projected Prices: $4.24/$4.41
Using data pulled from past USDA reports and historical December futures prices I developed a model similar to Darrel Good and Scott Irwin predicting price as a function of stocks-to-use ratios:
price = a + b (1/Stocks-Use Ratio)
What we can see from these projections are that the changes in the balance sheet from the May to June WASDE are minimal, and if anything could be trivially bullish with an increase in the projected price. With announcements this week of tariffs by the Trump administration the specter of trade wars at least for the near term is continuing to weigh the markets.
In addition to any loss in demand related to trade, many traders (the funds?) could be also thinking about the compound impact of trade wars in addition to better than expected yields. While I would tend to discount the really great crop ratings reports that have been coming out in the last couple of weeks (because they are so early) you can't discount how resilient modern genetics have been and allowed those 'better than expected' yields the last couple years despite some expectations of yield impacts from stress.
Ignoring any impact of trade wars on the demand side, it is easy to see what could happen to ending stocks to use and price as the yields tick up. If we were to beat last year's record yields you can really see the price pressure.
Yield Stocks to Use Price
174 10.8% 4.41
176 11.91% 4.16
178 13.01% 3.95
180 14.12% 3.78
On the technical side, this is playing out on the charts with price falling below the 200 day moving average (blue) for a number of sessions and the 20 day (red) dropping below the 50 day (black) and lots of volume behind this momentum. The MACD mirrors this with no hint of reversing.
What happens next will ultimately depend on how trade issues unfold and how the summer weather impacts pollination and grain fill. One thing to nail down will be actual planted acres to come out at the end of June. It seems like the worst of the trade issues are being priced in now, so as long as planted acres don't surprise us with unexpected increases perhaps a weather issue or trade resolution will create some price bounces as we go through the summer.
***This commentary is provided for descriptive and entertainment purposes only and is not intended to be used for specific trading strategies or interpreted to be investment advice. *****
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