Crops Analysis | August 4, 2023
Price action: December corn futures pared overnight gains but still managed to close 3 3/4 cents higher at $4.97 1/4 but marked a 33-cent loss on the week.
5-day outlook: Corn futures gapped higher overnight, but sellers came in force and trended prices lower during the day session as “sell the bounce” trading takes hold. Grains rallied overnight on news of a Ukrainian drone attacking Russia’s Black Sea naval base at Novorossiysk. The attack delayed port activity briefly, but all operations resumed within a couple hours. Russia continues recent rhetoric that they will return to the Black Sea grain deal once all barriers are removed for Russian agricultural exports, via actions and not words. Russia remains blocked from SWIFT, an international payment processing system, which makes it difficult for payments to be made to Russian entities for their exports. SWIFT reinstatement is one of Russia’s key demands for returning to the deal.
Price only rose slightly today after falling the prior eight sessions, but still closed near intraday lows. December futures are trading near the mid-July low and the support zone that capped nearly all losses the first two weeks of July. This support zone remains key. Only once did price close below $4.90 back then, which ultimately led to a false breakdown-reversal that started the second summer rally of the year. Bulls want to keep price above $4.90 once again, any weakness below would indicate a technical breakdown targeting $4.65. Technicals are likely to drive price action over the next week, indicating a potential corrective bounce, but rallies are likely to be short lived as August is bearish seasonally.
30-day outlook: Production prospects are better realized over the course of August, with the first hard-data based yield projection of the year. The Crop Production and Supply and Demand reports next Friday will be market movers, likely determining price action over the next month alongside weather. World Weather Inc forecasts ideal rain over the next two weeks, which would benefit finishing for corn and help yield prospects. The question remains in how much of top end yield has already been taken off, which the report next Friday and the upcoming Crop Tour will provide timely insight. The bearish August seasonal will weigh on prices, which will need a fresh catalyst to see sustained strength over the next month.
90-day outlook: Demand prospects remain poor for new crop, though that can change at a moments notice. While soybeans have seen a string of daily export sales announcements, corn has not had such luck. Overall, outstanding sales for new crop are at the worst level since 2019 for this date and outstanding sales to China are less than a tenth of what they were. Brazil has taken significant market share from U.S. corn and it is unknown when that will start to come back. The USDA is currently projecting 450 million additional bushels for export next year and the balance sheet is still seen as expanding to 2.262 billion bushels in the July Supply and Demand report. While we maintain weaker production and weaker exports than the USDA, we still see the balance sheet as expanding above 2 billion bushels. This will continue to weigh on prices through harvest. Seasonal harvest pressure will also weigh on prices once combines begin hitting the fields, adding further pressure to bulls’ headwinds.
What to do: Get current with advised sales.
Hedgers: You should be 90% sold in the cash market on 2022-crop. You should be 50% forward priced for harvest delivery on expected 2023-crop.
Cash-only marketers: You should be 90% sold on 2022-crop. You should be 35% forward priced for harvest delivery on expected 2023-crop production.
Price action: November soybeans rose 8 cents to $13.33 1/4, gaining a paltry 1 1/2 cents on the week. September soymeal fell $4.50 to $422.60, losing $1.20 week-over-week, while September soyoil gained 135 points to 65.39 cents, and rose 220 points on the week.
5-day outlook: Soybeans were able to secure follow-through gains to end the week, along with an advanced technical posture, with a close held above the 40- and 200-day moving averages. Crude oil strength combined with a sinking U.S. dollar lent an edge to commodities, though weakness in meal futures likely capped gains in the soy complex. Over the next week, traders will remain tuned into any escalation in the Russia/Ukraine conflict and prepare for USDA’s World Agricultural Supply and Demand Estimates, due out Aug. 11. A particular focus will remain on yield adjustments following a large acreage reduction in USDA’s June Acreage Report as well as ending stocks.
30-day outlook: Weather will be a longer-term focus into September as the soybean crop progresses through its crucial growth phase. World Weather Inc. states today’s forecast is wetter than advertised earlier this week for the driest areas from eastern North Dakota to northwestern Minnesota and significant rain is expected there this weekend with eastern South Dakota and northeastern Nebraska to Wisconsin to Iowa seeing rain as well. The forecaster notes a close watch will be made on the rainfall distribution in east-central and northeastern North Dakota and nearby Minnesota where additional rains of significance are not expected until Aug 13-15. A lack of significant heat is expected to continue throughout the Midwest during at least the next ten days. However, while many areas across the Midwest will see improvements in yield potentials during the next two weeks to ten days, dry soils and periods of hot weather in June and July likely caused some declines in yields that will not be recovered.
90-day outlook: As the new marketing year approaches, traders will closely watch U.S. export sales to gauge overall demand and the global economy. A recent uptick in export sales has had marginal effects on futures, though persisting sales would help undergird the complex. In the week ended July 27, USDA reported net new crop sales of 2.631 MMT, which exceeded pre-report range of 1.0 to 2.5 MMT. Top purchasers during the week included 1.574 MMT to “unknown destinations” and 859,000 MT to China. Of additional importance in the coming days will be South American weather as farmers prepare to plant soybeans across Brazil and Argentina.
What to do: Get current with advised sales.
Hedgers: You should be 100% sold in the cash market on 2022-crop. You should be 45% forward sold for harvest delivery on expected 2023-crop production.
Cash-only marketers: You should be 100% sold on 2022-crop. You should be 40% forward sold for harvest delivery on expected 2023-crop production.
Price action: December SRW wheat futures rose 5 1/4 cents to $6.60 1/4, nearer the session low and for the week down 51 1/2 cents. December HRW wheat dropped 12 3/4 cents to $7.69 1/4 and hit a more-than-two-month low. For the week, December HRW lost $1.00. December spring wheat fell 9 3/4 cents to $8.37 3/4 gave up 31 3/4 cents on the week.
5-day outlook: The low-range weekly closes in the winter wheat futures markets suggest some follow-through technical selling pressure early next week. The one thing that could come into play for the wheat market bulls early next week is that futures prices are well oversold on a near-term technical basis and due for corrective bounces. Any major news on the Russia-Ukraine war front, or on Russia changing course on the failed Ukraine-grain-shipping deal in the Black Sea will impact wheat trading next week. Next Friday’s monthly USDA supply and demand report will be the data points of the week for grain market traders.
30-day outlook: Continuing winter wheat harvest progress and related commercial hedge pressure are likely to limit any rallies in the winter wheat futures markets in the coming few weeks. Focus of spring wheat traders will continue on weather conditions in the northern Plains. World Weather Inc. today reported needed rainfall is still expected in the first week of the outlook, mainly in the southern half of the region. Much of this is expected from a weather disturbance today through Saturday. The rain will increase topsoil moisture and reduce crop stress. Temperatures will also be near to below average which will help as well due to the reduced evaporation rates. However, the forecaster said much of the expected rain is coming too late for a majority of the spring wheat crop.
90-day outlook: Thursday’s weekly export sales report showed U.S. wheat export sales totaled 421,300 MT in week ended July 27, up 81% from the previous week and 40% from the four-week average. China was the top buyer at 138,500 MT. If U.S. wheat sales abroad can continue to markedly improve in the coming months, such would put a floor under the futures markets and support price recoveries. However, the recent uptrend in the U.S. dollar index won’t help U.S. wheat’s price-competitiveness on the world markets.
What to do: Get current with advised sales.
Hedgers: You should be 50% sold in the cash market on 2023-crop production.
Cash-only marketers: You should be 50% sold on 2023-crop production.
Price action: December cotton fell 41 points to 84.29 cents and lost 43 points on the week.
5-day outlook: December cotton futures consolidated sideways between the 10- and 20-day moving averages to end the week, as supportive outside markets and equity strength failed to provide the natural fiber a proper boost. As the next week approaches, traders will prepare for the August WASDE, due out the 11th, which will provide insight into both supply and demand. Outside markets will also continue to help provide near-term direction.
30-day outlook: A close watch will remain on weather throughout key growing regions as cotton conditions remain questionable in key growing areas. World Weather Inc. notes short soil moisture, hot temps and a lack of significant rain through the next week across much of the southern Plains will lead to rising levels of stress and declines in yield potentials in dryland areas. The forecaster states showers will increase Aug. 12-18 but confidence is low for the significance of these showers with early indications suggesting most areas will see rain that is too infrequent and light to induce significant improvements in crop and soil conditions. While meaningful rain could increase yield potentials in some areas, periods of excessive heat and a lack of soil moisture at times this season caused permanent reductions in yields.
90-day outlook: With the start of a fresh marketing year, traders will closely eye export sales. As the current marketing year winds down, U.S. export sales have waned, heightening demand concerns. In the week ended July 27, USDA reported export sales reductions of 9,900 RB, which were down 47% from the previous week and down noticeably from the four-week average. Meanwhile, new-crop sales totaled 33,900 RB during the week, with primary purchasers including China (18,300 RB), Mexico (17,200 RB) and Turkey (9,600 RB). Old-crop export commitments ended the marketing year 10.5% behind year-ago, compared to 11.0% last week.
What to do: Get current with advised sales.
Hedgers: You should be 100% priced on 2022-crop in the cash market. You should have 60% of expected 2023-crop production forward sold for harvest delivery.
Cash-only marketers: You should be 100% priced on 2022-crop. You should have 60% of expected 2023-crop production forward sold for harvest delivery.
