The July WASDE report hit the agricultural sector like a ton of bricks. Grains and oilseed prices dropped, cotton was lower, and cattle and hog prices fell on July 12 after the report’s release.
Meanwhile, the agricultural markets remain in the heart of the 2023 growing season in the northern hemisphere, and the weather and geopolitical events over the coming weeks will determine the path of least resistance of prices. The text of the July WASDE report is available through this link.
Sal Gilberte’s take on the July WASDE report
I reached out to Sal Gilberte, the founder of the Teucrium family of agricultural ETF products, including the SOYB, CORN, and WEAT ETFs. On July 12, Sal told me:
The USDA took the opportunity in its July WASDE report to adjust corn yields per acre downward which was needed given the dryness much of the corn-belt experienced early this season. No doubt the USDA remembers that a similar early dry pattern occurred in 2013 but late July and good August rains that same year saved the corn crop and started a multi-year pattern of good weather and record corn production that eventually took grain prices to their cost of production. Projected soybean yields this month remain unchanged, which is sensible given that August weather is what really matters for soybean production. That said, the huge decline in planted soybean acres announced in the June 30th acreage reports motivated the USDA to cut back on soybean usage in order to salvage the soybean balance sheet from what could still become record or near-record low ending stocks in the 2023/24 growing season. Given Brazil’s healthy corn and soybean crops, and Russia’s massive wheat supplies and competitively priced wheat exports, the USDA can, and did, reasonably cut US grain exports to keep balance sheets relatively balanced. Weather and war will determine the future price trajectory of grains even as this month’s WASDE report clearly gives a boost to the current downward price pressures across the grain complex.
Sal commented, “Weather and war will determine the future trajectory of grains even as this month’s WASDE report clearly gives a boost to the current downward pressure across the grain complex.” The pressure continued after the WASDE release, but it triggered buying the following day as prices increased on July 13.
Kneejerk reaction – Soybean and corn futures drop, then recover
The July WASDE said U.S. and global soybean stockpiles moved lower from the June report and increased its 2023/2024 price forecast by 30 cents per bushel from the previous report. However, selling hit the bean futures on July 12.
The chart shows new crop November soybean futures settled at $13.6025 on July 11, the session before the July WASDE release. While prices dropped to $13.25 after the report and settled near the session’s low at $13.2775 per bushel, they came storming back to the $13.6975 level on July 13 and closed the week at $13.7075 on Friday, July 14.
Corn futures experienced similar price volatility after the USDA increased U.S. and global ending stocks, leaving its price forecast unchanged from the previous month. Meanwhile, beginning stocks fell as the USDA revised its corn yield forecast downward because of extreme weather conditions.
The new crop December corn futures settled at $5.0150 on July 11, fell to $4.81 after the July WASDE, and recovered to over the $5 level on July 13, closing at $5.1375 on July 14.
Wheat declines, then recovers
Nearby CBOT soft red winter wheat futures fell after the July WASDE as the USDA increased U.S. stocks and reduced its price forecast by 20 cents per bushel. However, the WASDE lowered global ending 2023/2024 stocks, which could be the fourth consecutive annual decline in wheat inventories.
CBOT wheat futures settled at $6.6050 per bushel on July 11. After the report, the price dropped to $6.22 on July 13 but recovered to close at $6.6150 on July 14.
The USDA’s July WASDE mentioned the shortage of hard red winter wheat, saying:
This month provides the first by-class 2023/24 U.S. wheat supply and use projections. Two consecutive years of drought-affected Hard Red Winter (HRW) wheat crops reduce HRW ending stocks to the lowest level in 16 years despite decreased total use. HRW food use is forecast to be the smallest since 2010/11, while HRW exports are the lowest since by-class supply and utilization records began in 1973/74.
The long-term average of the KCBT hard red winter wheat versus the CBOT soft red winter wheat spread is a 20-30 cents premium for the hard red winter wheat. The September new crop spread at a $1.6750 premium for the KCBT wheat reflects the supply issues caused by “two consecutive years of drought.”
Cotton and meats reaction
The USDA told the cotton market U.S. and global stocks have increased since the June WASDE report.
The chart illustrates nearby December cotton futures settled at 82.12 cents per pound on July 11. The December cotton futures price rose to 83.10 on July 12 before correcting to the 81.22 cents level on July 14, in a muted reaction to the fundamental data.
Meanwhile, August live cattle and lean hog prices have been in bullish trends. The WASDE increased cattle and hog price forecasts on “firm demand and relatively tight supplies.” The price action after the USDA’s report was:
- August live cattle futures settled at $1.78825 per pound on July 11, rose to a $1.81175 high on July 13, and were trading at the $1.80175 level on July 14. Live cattle futures reached a record peak this month.
- Feeder cattle for August delivery settled at $2.47150 per pound on July 11 and rose to $2.5130 on July 12 before correcting to the $2.46650 level on July 14. Feeder cattle futures also reached an all-time high in July 2023.
- August lean hog futures settled at 97.575 cents per pound on July 11 and rose to 99.00 cents on July 12 before correcting to the 96.20 level on July 14.
The meats remain near the recent highs, with cattle prices at the highest level in history.
The many reasons why the selloff is a buying opportunity
The kneejerk selling in the soybean, corn, and wheat futures market turned out to be a mistake, and the bearish tone of the July WASDE report provided market participants that bought the dip with a gift. The following factors support agricultural commodity prices in July 2023:
- Agricultural commodities face hot and dry conditions in the Northern Hemisphere during the 2023 growing season, which may cause crop yields to decline.
- Production costs have increased, putting upward pressure on prices.
- Europe’s breadbasket remains a battlefield, as Russia and Ukraine are significant wheat and corn-producing countries.
- The Black Sea Ports, a significant international export hub, remains a warzone, which could impede agricultural commodity flows over the coming months.
- Elevated energy prices put upward pressure on corn as it is the main ingredient in U.S. ethanol production.
- The WASDE report tends to view agricultural markets with rose-colored glasses, forecasting a “best-case” supply analysis. Rising global food and energy demand has tightened the fundamental equation for the products that feed and increasingly fuel the world.
The July WASDE report caused a short-term selloff in the grain and oilseed futures markets, which was a buying opportunity. The uncertainty of the 2023 crops will likely cause continued volatility, with the potential for price spikes if supplies do not validate the USDA’s forecasts.
On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
