Quiet report in midst of volatility

KANSAS CITY, Mo. — There were no surprises in the U.S. Department of Agriculture’s supply and demand estimate report as the market turns its focus toward weather and the upcoming planted acres report at the end of June.

Arlan Suderman, StoneX Group chief commodities economist, hosted a webinar following the release of the crop balance sheets and crop production reports June 10 to provide his insight.

“As expected, it was a pretty quiet report. There are a lot of moving parts right now in these markets. We’ve seen a tremendous amount of volatility,” Suderman said.

“There is a lot happening, both in the fundamentals of the commodities, as well as in the broader market in which these commodities are being traded.”

Soybean ending stocks were a little below expectations and corn ending stock were slightly above pre-report estimates. Did anything in the reports stand out to you?

Suderman: There was a 40 million bushel change in the corn balance sheet, but when you’re talking ending stocks of 1.4 billion bushels, that’s insignificant to this market relative to what might happen with the acreage on June 30 or what might happen with the changing weather pattern which is shifting hotter and drier than normal in the next 30-plus days.

With soybeans, that’s a little more significant although the market response is kind of a little bit more reflective today of the broader picture.

USDA increased soybean exports as we anticipated and dropped ending stocks. I dropped my ending stocks estimate below 200 million bushels back in the first week of February when USDA was at 325 million at the time and they continue to come my way. Now USDA is within 11 million bushels. There’s a smaller Brazil crop and bigger than expected demand out of China is the primary reason for that (drop in ending stocks).

The USDA increased winter wheat production by about 8 million bushels.

Suderman: That’s not a significant change there. The focus is still on how many spring wheat acres we get planted and how that crop is going to perform this summer with this changing weather pattern.

So, a pretty routine crop overall. Still ongoing supply concerns are underpinning this market longer term with bigger risk still ahead. So, I think we quickly move past this report.

USDA increased Ukraine’s corn production to 25 million metric tons from 19.5 million last month. What are your thoughts on global supplies?

Suderman: USDA is trying to give an accurate portrayal of exactly what happens with production supply and demand, and that’s their job to do. But the bottom line to the market is going to be how much is Ukraine going to be able to export and we remain very skeptical about that ability.

In effect, Ukraine has said the maximum they can export over land is 2 million metric tons. They haven’t reached that yet. They’re having trouble getting over 1 million metric tons, although they say they got up to 1.7 million metric tons last month. But they’ve also said that as Europe harvests their crop starting in a couple of weeks that Europe’s infrastructure is largely going to be tied up with that and it’s going to make it even more difficult for them to export.

So, Ukraine can produce it, but if the world can’t access it, it’s still not available and that’s what the market ultimately has to figure out until those bushels are accessible in the future. Unfortunately right now it’s going to be the distant future.

The latest Consumer Price Index that came out just prior to USDA’s reports was at 8.6%. It was forecast to drop to 8.2%, down from 8.3% last month.

Suderman: If you look at consumer sentiment and those numbers that come out today, there was a major plunge of 14% consumer sentiment from last month, down well over 40% from a year ago. Consumers are very concerned about high gasoline prices and the overall direction the economy is going and what the future is.

Wall Street is concerned about how the Federal Reserve will respond to this when they meet June 14-15. So, that’s got basically a risk-off mentality that these markets were in when this USDA report came out.

I think that’s very important to recognize that commodity prices are a big part of the inflation picture and so the funds want to own these commodities. Since USDA came out with basically a quiet report we have seen wheat rally into the grain, we’ve seen corn start to rally into grain and soybeans start to erase their losses which tells us a lot about these markets.