Crops Analysis | February 10, 2022
Price action: March corn futures fell 5 cents to $6.41 3/4, after rising earlier in the session to a contract high at $6.62 3/4, the highest intraday price for nearby futures since mid-July. December futures fell 3 3/4 cents to $5.84 3/4 after posting a contract high at $5.98 1/2.
Fundamental analysis: Corn futures joined a broad agricultural commodity sell-off driven by profit-taking and long liquidation in the wake of the steep gains in recent sessions. Prices surged earlier today on further reductions in the harvest outlook for South America. Conab, Brazil’s forecasting agency, cut its Brazilian corn crop estimate by 559,000 MT from last month to 112.3 MMT and also lowered projected 2021-22 corn exports by 1.7 MMT, to 35 MMT. USDA projects corn production in Brazil at 114 MMT.
Lackluster weekly export sales figures from USDA raised concern whether corn futures can hold at elevated levels much longer. USDA reported net U.S. corn export sales of 589,100 MT for the week ended Feb. 3, down 50% from the previous week and down 43% from the average for the previous four weeks. Sales were at the low end of expectations ranging from 500,000 to 900,000 MT in the 2021-22 marketing year. Corn export commitments so far in 2021-22 are running 21% behind year-ago levels, compared to 20% last week.
Technical analysis: Futures’ late sell-off weakened the market’s technical standing, suggesting the market may have established a blow-off top and may face further liquidation from speculative funds, which hold a large net long position. Longer-term, the price uptrend remains intact, and the market will need to see followthrough selling tomorrow to confirms beliefs that they highs may be in. Initial resistance is seen at the March contract high of $6.62 3/4. Initial support is seen at the 10-day moving average of $6.31 1/4. Downside targets for bears include closing March futures below support at the February low of $6.10 1/4. Upside objectives for bulls include closing March above solid resistance at $6.50.
What to do: Get current with advised 2021- and 2022-crop sales.
Hedgers: You should be 80% priced in the cash market on 2021-crop. You should also have 30% of expected 2022-crop production forward priced for harvest delivery.
Cash-only marketers: You should be 80% priced on 2021-crop. You should also have 30% of expected 2022-crop production forward priced for harvest delivery.
Soybeans
Price action: Old-crop soybean futures finished low-range with losses of 15 to 20, with the March contract down 20 1/2 cents to $15.74 1/4, after rising earlier to a contract high at $16.33. New-crop November soybeans dropped 5 1/2 cents to $14.32. March soybean meal fell $7.90 to $454.00. March soyoil firmed 41 points to 64.51 cents.
Fundamental analysis: After surging the new contract highs and reaching the highest level for a lead-month contract since last May, soybean futures ran out of buyer interest and reversed lower amid profit-taking and fund liquidation. There was no fundamental reason for today’s price reversal. In fact, the news today was bullish. But parabolic markets often don’t need a fundamental reason to top – they can do so when funds, who in this case likely hold a record long position, decide the market has run far enough. Tomorrow’s price action will determine if active buyers remain or if a deeper corrective pullback is ahead. Money flow will be more critical to near-term price action than fundamentals as futures are well above their historical fundamental value.
Brazil slashed its soybean crop estimate by 15 MMT to 125.5 MMT, compared to USDA’s current estimate of 134 MMT. While this cut was far greater than traders anticipated at this time, those types of crop losses were “known” because of private crop forecasts and already factored into prices. It would likely take another wave of Brazilian crop estimates under 125 MMT to add fuel to bulls’ fire.
Weekly export sales were above expectations at nearly 1.6 MMT for old-crop and nearly 900,000 MT for 2022-23, though many of those sales were known via daily sales announcements. USDA reported daily soybean sales of 299,700 MT to “unknown destinations,” including 233,700 MT for delivery during the 2021-22 marketing year and 66,000 MT during the 2022-23 marketing year, continuing the recent string of active buying by China and “unknown.” Bulls have been conditioned to expect the daily sales, so they much continue to maintain buyer interest.
Technical analysis: March soybean futures didn’t post a key bearish reversal, but today’s price action is a potential exhaustion top and the contract closed below the 5-day moving average for the first time since Jan. 25. One-day price moves to the downside haven’t attracted active followthrough selling, so another strong downside day would signal a short-term top at a minimum and potentially a major top.
Today’s high at $16.33 is initial resistance, followed by the 2008 high at $16.63, the 2021 high at $16.77 1/4 and the all-time high at $17.94 3/4 from 2012 – the only price peaks above current levels on the continuation chart. Historically, prices don’t hold at these levels for long, with the downside price moves once tops are in place both sudden and violent. Near-term support is at the 10-day moving average around $15.45, followed by the 38.2% retracement of the $2.83 1/4 surge from the mid-January low to today’s high, which is around $15.23 1/2.
What to do: Get current with advised 2021- and 2022-crop sales.
Hedgers: You should be 95% sold in the cash market on 2021-crop. You should also have 30% of expected 2022-crop production forward priced for harvest delivery.
Cash-only marketers: You should be 85% sold on 2021-crop. You should also have 30% of expected 2022-crop production forward sold for harvest delivery.
Price action: March SRW wheat fell 13 1/2 cents to $7.71 1/2, after rising earlier to a two-week high at $8.01 3/4. March HRW wheat fell 14 cents to $8.01. March spring wheat fell 11 1/4 cents to $9.42 1/4.
Fundamental analysis: Wheat futures followed corn and soybean markets today, rallying earlier and then selling off amid fund liquidation. Look for wheat futures markets to continue to take direction from corn and soybean price moves for the near term. Disappointing USDA export sales numbers also weighed on wheat futures. Net weekly U.S. wheat sales for 2021-22 totaled 84,800 MT, up 48% from the previous week but still down 75% from the prior four-week average. Sales of 48,400 MT were reported for 2022-23. U.S. wheat export commitments are running 24% behind last year at this time.
U.S. winter wheat considered in drought condition increased two points to 71% for the week ended Feb. 8, according to the U.S. Drought Monitor. Among top HRW states, Kansas had a three-point decrease in the area considered abnormally dry or in drought to 86%, while Nebraska had a six-point increase to 98%.
March HRW prices also posted a bearish outside day down, but HRW bulls have a near-term technical advantage. HRW bulls' next upside price is closing March futures above solid resistance at the January high of $8.49 1/4. The bears' next downside objective is closing prices below solid support at the January low of $7.43 3/4. First resistance is seen at $8.15, then at today’s high of $8.30. First support is seen at today’s low of $7.94 3/4, then at 7.85.
What to do: Get current with advised 2021- and 2022-crop sales.
Hedgers: You should be 80% priced in the cash market on 2021-crop. You have hedges covering 20% of 2021-crop in short March SRW wheat futures at $7.57. You should also have 30% of expected 2022-crop production forward priced for harvest delivery.
Cash-only marketers: You should be 80% priced on 2021-crop. You should also have 30% of expected 2022-crop production forward priced for harvest delivery.
Price action: March cotton fell 77 points to 125.66 cents per pound and near the session low.
Fundamental analysis: Long liquidation and a “risk-off” trading day in commodities, with grain futures tumbling, weighed on cotton futures. USDA’s weekly export sales report today showed U.S. cotton net sales of 185,200 running bales (RB) for 2021-22 were down 44% from the previous week and down 47% from the prior four-week average. Top buyers included China (100,800 RB) and Pakistan (20,600 RB). Net sales of 96,100 RB for 2022-23 were primarily for Pakistan (43,100 RB) and Mexico (28,300 RB). Lingering pressure from yesterday’s USDA Supply & Demand Report also pressured cotton futures. USDA lowered its U.S. 2021-22 export forecast by 250,000 bales.
What to do: Get current with advised 2021- and 2022-crop sales.
Hedgers: You are 100% priced in the cash market on 2021-crop. You should also be 50% forward-priced for harvest delivery on expected 2022-crop production.
Cash-only marketers: You should be 90% priced on 2021-crop. You should also be 50% forward-priced for harvest delivery on expected 2022-crop production.
