Grains ended lower on Friday and for the week once again. December corn was down 10 cents, November soybeans lost nearly 26 cents, September soybean meal was down $12.30 and bean oil was 126 points lower. September Chicago wheat lost 6¼ cents, Minneapolis wheat was down 7¼ cents, while Kansas City wheat bucked the trend and finished up 3¼ cents.
So why did the grain markets end lower after USDA made yield, production and ending stocks cuts for both corn and soybeans in the August WASDE report? The answer: It is because USDA also made subsequent cuts in demand including exports, according to Jerry Gulke, president of the Gulke Group.
Gulke says the report was what he expected: “There was enough evidence of headwinds, which have been around for 18 months, to adjust the demand side of the supply-and-demand equation if reports necessitated reducing supply or yields.”
He says Friday’s report was no exception.
Corn production was reduced 155 million bushels by lowering yield 2.4 bushels per acre. However, demand was reduced 85 million bushels, including a cut in exports of 25 million bushels for 2022/23 and 50 million bushels for 2023/24.
Soybean production was lowered 95 million bushels with a 1.1 bushel cut in yield. Again, Gulke says USDA lowered demand 26 million bushels for a resulting drop in ending stocks of only 55 million bushels to 245 million bushels.
“Had demand not been reduced, ending stocks would have been close to 205 million bushels with six weeks of growing weather yet to come,” he says.
USDA also lowered wheat yield by 0.3 bushels, but true to form, the agency cut exports 25 million bushels for a net rise in ending stocks of 23 million bushels.
Prices responded violently after the WASDE report came out with the day ending in very wide ranges. In fact, Gulke says there were massive reversals off higher trades. December corn futures posted a daily key reversal down. Wheat closed at lows not seen since early May.
“The general feeling was that if demand was whacked in this report, the overall outlook for commodities by those who trade is not good,” according to Gulke.
Gulke also says there is negativity in the commodity sector that is spilling over from the events that happened on July 27 in commodities, financials and the stock market with some negative technical signals that mark a turning point in grain and livestock futures and outside markets. He points to a negative sentiment that inflationary and recessionary fears are not over.
