The USDA released its June World Agricultural Supply and Demand Estimates Report on Wednesday, June 12. I reached out to Jake Hanley, the Managing Director of the Teucrium family of agricultural ETF products, including CORN, SOYB, and WEAT, for his opinion on the latest report that is the gold standard for fundamental supply and demand data for the agricultural products that feed and increasingly power the world. Jake told me:
The June WASDE report largely lived up to its reputation of being a non-event. Nothing in today’s report is likely to change the prevailing narratives that all converge on the conclusion that global supplies of corn, soybeans, and wheat are adequate.
Still, with another month of data under our belts we have the opportunity to sharpen our understanding of current conditions.
Starting with wheat, as it is a relative outlier compared to corn and soybeans. Note that the global wheat balance sheet is expected to tighten for the 5th consecutive year. That is to say that the world is set to consumer more wheat than it produces for the 5th year in a row. The global stocks-to-use ratio (ending stocks/usage) is projected to be the lowest in 9 years. A tighter global balance sheet is fundamentally supportive for wheat prices. This fundamental picture helped fuel the recent rally in wheat futures that extended from late April through most of May. Much of the rally was tied to news of frost and drought conditions impacting key growing areas in Russia and Ukraine. The USDA acknowledged these production challenges with a 5 million metric ton (mmt) revision lower for Russia wheat production and a 1.5 mmt revision lower for Ukraine wheat production. At present, it seems that these production concerns are already factored into the market. Bull markets need to be fed, and it seems that wheat bulls are now wondering from where their next snack is going to come.
The USDA is projecting year over year supply builds in both corn and soybeans. What’s more the global corn balance sheet appears stable, whereas global soybean supplies are nearing a record high relative to demand. To be certain these projections depend on favorable North American growing conditions. The weather has cooperated thus far, and both U.S. corn and soybean crops are off to a healthy start. The expectation of increased supplies relative to demand is likely to weigh on both corn and soybean prices. Lower prices are to be expected unless and/or until there is a shift in the fundamental outlook. Such a shift would likely be related to an unfavorable weather outlook, and/or a geopolitical event/shock.
