Crops Analysis

Posted on Thu, 12/05/2019 - 15:34

Corn

Price action: Corn prices fell for a second session after failing to break overhead resistance to start December. March corn futures dropped 2 ¾ cents to $3.78 ½.

Fundamental analysis: The market was pressured by 129 deliveries against the expiring December futures overnight after no deliveries to start the process. Weather leans negative with rains boosting first-season corn and a few showers forecast for Argentina. But dry pockets remain in Argentina and those showers are critical with a dry January forecast. U.S. harvest will make some progress with drier weather into the weekend.

U.S. corn is competitive on the world market and exports need to ramp up significantly to sustain any rally into the new year.  The market is going to need some positive demand news to build on last week’s rebound attempt. That starts in the morning with the weekly USDA Export Sales Report. Traders are looking for sales to fall between 500,000 to 900,000 metric tons (MT) compared with 806,800 MT last week and 1.178 million MT a year ago.

Oil prices surged more than 2% on Wednesday ahead of meetings this week where OPEC members and allies are expected to extend production curbs to support the market, while U.S. industry data showed crude oil stockpiles fell more than expected last week. U.S. ethanol production rose for an 10th straight week but failed to hold production above last year after rising above 2018 output a week earlier for the first time since April. Ethanol stockpiles rose sharply last week.

Technical analysis:  March futures held support at $3.77 today but until prices close above $3.85 in the near term, the trend remains lower. The recent rebound did turn short-term momentum indicators back higher and a strong weekly close would be a positive signal. Weekly charts point lower toward September support at $3.66 ½.

What to do: Get current with advised 2019-crop sales to take advantage of strong basis and limit further near-term downside risk in futures. We’ll wait on the next push to the upside to start 2020-crop sales.

Hedgers: You should be 50% priced in the cash market on 2019-crop.

Cash-only marketers: You should be 50% priced on 2019-crop.

Soybeans

Price action: Futures rose for a second session after plunging more than 90 cents in five weeks to near a 12-week low to start December. January soybeans rose 7 cents to $8.78. January meal rose $2.00 to $296.70 and soyoil futures gained 28 points to 30.47 cents.

Fundamental analysis: According to a new Bloomberg News report the U.S. and China are moving closer to agreeing on the number of tariffs that would be rolled back in a phase-one trade deal, and on Chinese agricultural purchases. Dalian soybeans jumped more than 25 cents overnight in China. President Donald Trump's son-in-law Jared Kushner has added another role to his long list of White House duties -- U.S.-China trade negotiator-- as Washington and Beijing try to reach an initial agreement to avoid new U.S. tariffs on Dec. 15. People familiar with the talks told Reuters that Kushner, who helped bring the U.S.-Mexico-Canada trade agreement (USMCA) to fruition, has increased his direct involvement in the negotiations with China over the past two weeks. However, China crushers have exhausted tariff-free import quotas for U.S. soybeans so more quotas will need to be announced for January-to-March shipments.

Rising crush margins continue to boost soybean demand and basis levels with 13 U.S. crushers raising cash bids yesterday. Weather leans negative with drier weather aiding the final 3% of unharvested soybeans, while widespread rains in South America continue to promote active growth. A few showers may reach parts of Argentina, but dry pockets will remain and now the first half of January is looking very dry again.

Technical analysis:  The two-day rally is nothing more than a short-covering correction after funds sold a record amount of futures and options in the week ended Nov. 26. First resistance for January soybeans is near $8.95 with stronger resistance near $9.10. Key support remains at the September low at $8.65 and then near $8.40.

What to do: Wait on an extended price rebound before making sales. Be prepared to advance 2019-crop sales and start 2020-crop marketings on the next round of sales. 

Hedgers: You should be 50% forward-priced via hedge-to-arrive contracts for harvest delivery on expected 2019-crop production.

Cash-only marketers: You should be 40% forward-priced via hedge-to-arrive contracts for harvest delivery on expected 2019-crop production.

 

Wheat

Price action: SRW wheat futures rose around 2 cents in most contracts, HRW futures firmed mostly 3 to 4 cents and spring wheat futures ended mostly around a penny higher.

Fundamental analysis: Winter wheat futures mildly bounced back from sharp losses the first two days this week after failing to find sustained seller interest under Tuesday’s lows. The bulk of today’s price rebound was corrective in nature and traders showed no conviction behind the late buying, meaning the market will be searching for price direction tomorrow.

With Australian and Argentine crop problems factored into the market and given plentiful global supplies, a boost from export demand is needed to fuel a fresh wave of buyer interest, especially with funds mildly long SRW contracts. They are net short HRW and HRS futures, but fund long positions in SRW contracts are about equal to the other two markets combined.

Tomorrow’s weekly export sales data could provide some price direction, though the range of pre-report estimates is both safe and relatively wide, meaning it’s unlikely the report will be too market-moving. Traders expect weekly sales to fall between 300,000 and 700,000 MT tomorrow morning.

Technical analysis: March SRW wheat futures bounced after retracing 23.6% of the rally from the September low to the November high. If that support around $5.25 holds, it would suggest the pullback from last week’s high was nothing more than a correction to the rally. But the contract must push above last week’s high at $5.46 to recharge the rally. Today’s low at $5.22 1/4 is initial support, followed by the 20- and 40-day moving averages at $5.20 1/2 and $5.20, respectively. 

What to do: Be prepared to increase old- and new-crop sales on a rebound to near last week’s highs.

Hedgers: You should now be 60% sold in the cash market on 2019-crop Also, you should be forward contracted on 10% of expected 2020-crop wheat via hedge-to-arrive contracts for harvest delivery.

Cash-only marketers:  You should now be 60% sold on 2019-crop. Also, you should be forward contracted on 10% of expected 2020-crop wheat via hedge-to-arrive contracts for harvest delivery.

 

Cotton

Price action: December cotton futures closed up 7 points at 63.17 cents and March futures gained 65 points to 64.70 cents. March futures closed nearer the session high.

Fundamental analysis: Cotton traders continue to key off news headlines regarding U.S.-China trade talks. Today’s headlines were more optimistic for a China deal. According to a new Bloomberg News report the U.S. and China are moving closer to agreeing on the amount of tariffs that would be rolled back in a phase-one trade deal, and on Chinese agricultural purchases. Washington and Beijing are trying to reach an initial trade agreement to avoid new U.S. tariffs kicking in on Dec. 15. Still, sealing a deal with the China could prove daunting. China warned the U.S. over a U.S. House of Representatives bill calling for a tougher U.S. response to Beijing's treatment of its Uighur Muslim minority.

Earlier this week, China’s Caixin/Markit Purchasing Mangers’ Index came in at 51.8 points for November, a 0.1-point gain from October whereas analysts polled by Reuters had expected a dip to 51.4 points. China’s official PMI for November came in at 50.2, the highest level since March, the country’s statistics bureau reported over the weekend. Both the private and official PMI are in expansion territory, with readings above 50.0. This data suggests better demand for cotton coming from the world’s second-largest economy.

Cotton market watchers will closely examine Thursday morning’s weekly USDA export sales report, especially for any bigger purchases from and shipments to China.

Technical analysis:  Cotton bulls and bears are on a level overall near-term technical playing field amid choppy trading, but the market still feels “heavy” as a price uptrend on the daily chart has rolled over. The next upside price objective for the cotton bulls is to produce a close in March futures above solid technical resistance at the October high of 67.13 cents. The next downside price objective for the cotton bears is to close prices below solid technical support at 62.00 cents. First resistance is seen at 65.00 cents and then at 65.50 cents. First support is seen at this week’s low of 64.05 cents and then at the November low of 63.70 cents.

What to do: You should have a standing order to sell another 10% of 2019-crop in the cash market if March futures hit 67.50 cents to get to 65% sold.

Hedgers: You should be 55% priced on 2019-crop in the cash market.

Cash-only marketers: You should be 55% priced on 2019-crop.