Crops Analysis | February 24, 2022

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Corn ­

Price action: May corn futures rose 9 cents to $6.90 1/4, after reaching a contract high at $7.16 1/4. March corn gained 11 1/4 cents to $6.95, the highest close for a nearby contract since $6.97 1/4 on July 2. December corn fell 6 1/2 cents to $6.04 3/4 after rising earlier to a contract high at $6.46 1/4.

Fundamental analysis: Corn futures faded from overnight gains after rising the initial daily 35-cent trading limit, fueled by the wheat market’s rally after Russia’s invasion of Ukraine exacerbated fears of disruptions to the grain trade and the global economy. Russia and Ukraine account for nearly 30% of global wheat exports and almost one-fifth of world corn exports. Corn’s gains faded amid profit-taking and farmer selling, particularly in new-crop contracts, suggesting much of the Russia-Ukraine conflict had already been factored into prices.

U.S. farmers will reduce corn plantings this year as high prices for fertilizer and other crop inputs favor soybeans, USDA said today at its annual Outlook Forum. Corn plantings are projected to decline to 92.0 million acres from 93.4 million in 2021.

Technical analysis: Corn remains in a strong uptrend but today’s soft close, near the day’s lows, suggests the rally has reached an exhaustion point and prices may be establishing  a near-term peak. Even with the pullback, May corn ended today at nearly 73 on the Relative Strength Index, indicating overbought conditions. Price action the rest of this week will be key to near-term direction. Continued buying may signal another leg higher near or above $7.00, while further pullback would solidify ideas that a top is in. Based on continuation charts, upside targets in nearby corn include the July 2021 high at $7.50 1/2, as well as the May 2021 high at $7.75. Initial support is placed at today’s low of $6.79 and the 10-day moving average at $6.57.

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: May soybean futures fell 17 cents to $16.54, after surging to a contract high at $17.59 1/4 earlier. Nearby soybeans earlier posted a 9 1/2-year high. May soymeal fell $10.40 to $455.60 per ton and May soyoil rose 139 points to 71.97 cents per pound. Nearby soyoil hit a record high at 74.72 cents.

Fundamental analysis: Nearby soybean futures overnight rose above $17.00 for the first time in nearly 9 1/2 years, pulled higher by a rally in corn and wheat, but faded under profit-taking throughout the regular session and ultimately settled with sharp losses. Soyoil futures soared on concern Russia’s invasion of Ukraine could disrupt global edible oil supplies. Ukraine is the world’s largest producer and exporter of sunflower seeds and sunflower oil, and, combined with Russia, the two countries account for nearly 80% of global sunseed oil exports.

Otherwise, the soft performance of soybeans and soymeal suggests limited implications for those markets from the Russia-Ukraine conflict, and that South America’s drought-driven crop losses are factored into current prices. Market focus is increasingly turning to the U.S. 2022 planting outlook and prospects for higher soybean acreage. Soybean plantings are expected to rise to 88.0 million ac. from 87.2 million last year, USDA said at its Outlook Forum. The projected increase reflects a response to sharply higher soybean prices due to drought-driven crop shortfalls in South America.

Technical analysis: Soybean bulls took a body blow today as May futures nearly posted a key reversal from contract highs. Further weakness the rest of this week may signal a near-term market top. Even with today’s pullback, May soybeans ended at 74 on the Relative Strength Index, well into overbought territories. Initial resistance in May is at today’s $17.59 1/4 contract high. Based on continuation charts, further resistance is seen at the September 2012 high of $17.94 3/4. Initial support is seen at today’s low of 16.48 1/4 and the 10-day moving average at $16.02 3/4.

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.

 

Wheat

Price action: SRW wheat futures posted sharp to limit-up (50-cent) gains. HRW futures finished nearly limit up (50 cents) in nearby contracts. Daily trading limits for those two markets expand to 75 cents for Friday. HRW wheat futures settled as much as 29 cents higher after trading up the daily 60-cent limit earlier in the day. The daily trading limit will remain 60 cents for HRS futures on Friday.

Fundamental analysis: Wheat markets reacted strongly to Russia’s invasion of Ukraine overnight, as Euronext (Paris) wheat futures surged to all-time highs amid fears of disruptions to global trade. While U.S. futures came off limit up throughout daytime trade, there remains a lot of uncertainty in the marketplace. Ukraine has suspended all commercial shipping at its ports. Russia shuttered its ports in the Azov Sea, but Black Sea terminals reportedly remain open. Combined, Russia and Ukraine account for nearly 30% of global wheat exports.

Front-month SRW wheat futures have rallied $1.29 (16.8%) so far this week. That’s already more than the nearly 14% rally in 2014 when Russia annexed Crimea from Ukraine. The 2014 rally was based more on fear than anything, as there was little actual impact to shipments from Black Sea ports. This time, Russian President Vladimir Putin appears to want to close Ukraine’s ports for an extended period and take over a larger or total portion of the country. There appears to be a far greater risk to global wheat trade this time.

The rally in wheat, while driven by concerns about global trade flows and fear, will ultimately come down to money flow. As long as funds and other speculators continue to pump money into the long side of the market, there will be more upside to prices. When money flow reverses, futures will too. Be prepared to take advantage of the strong price rally with sales. These types of rallies are explosive but typically short-lived.

Technical analysis: Technicals are fully bullish and stronger than they’ve been in 10 years. Front-month SRW futures hit $9.26 and are nearing the 2012 high at $9.47 1/4. The only time prices have been above that is 2007-08 when prices ran to their all-time high of $13.34 1/2. Front-month HRW futures hit $9.63, clearing their 2012 high on the continuation chart. Next resistance is at the 2011 high at $9.90 1/2. The only time prices were higher than that was also 2007-08 when they reached $13.84 3/4. Front-month HRS futures spiked to $11.00, the highest level since the 2011 high at $11.20. The only time prices have been higher is 2008 when the market surged to $24.25 on a short squeeze.

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.

 

Cotton

Price action: May cotton fell 214 points to 119.16 cents per pound, near a four-week-low close.

Fundamental analysis: Cotton futures were pressured by risk aversion following Russia’s invasion of Ukraine, as sell-offs in global stock markets spooked the cotton bulls. However, by early afternoon U.S. stock and financial markets had settled down, with the S&P 500 and Nasdaq indexes moving higher and U.S. Treasury yields rising well off their daily lows. That suggests cotton futures may have overdone it on the downside and could post a rebound on tomorrow, especially if there are no surprises in the Russia/Ukraine situation overnight.

The surge in the U.S. dollar index to a 1 1/2--year high was also a negative for cotton futures. However, crude oil pushed above $100 a barrel in both Nymex and Brent futures overnight, hitting 7 1/2-year highs, and that should keep a floor under the cotton market in the near term.

Traders will examine tomorrow’s weekly USDA export sales report, which was delayed by one day due to the U.S. holiday on Monday. However, it’s likely that report will not have a big impact on cotton futures, given the major geopolitical event playing out at present. Still, cotton market bulls may need to see improved U.S. export data before stepping back into the futures market to buy aggressively.

Technical analysis: May cotton futures scored a bearish “outside day” lower on the daily bar chart and cotton bulls still have a firm technical advantage, but a 2 1/2-month-old uptrend has stalled out, a clue a market top is in place. The next upside objective for bulls is closing May futures above solid resistance at the contract high of 125.83 cents. The next downside objective for bears is closing prices below solid support at 116.67 cents. First resistance is seen at 121.46 cents, then at 122.00 cents. First support is seen at last week’s low of 118.76 cents, then at 118.00 cents.

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.

 

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