Crops Analysis

Posted on Fri, 05/22/2020 - 14:31

Corn

Price action: A quiet, mixed finish on Friday. July corn gained 1/4 cent to $3.18 and down 1 1/4 cents for the week. December lost 1/4 cent to close at $3.32 ¾ and up 3/4 cent for the week.

5-day outlook:  Mixed price action for the week but near weekly lows and just above key support.  The market was pressured this week by favorable central U.S. weather forecasts into the summer, deteriorating Chinese relations and uncertainty how quickly feed and fuel producer demand will improve after recent shocks.

Much of today’s trading looked like traders evening up positions ahead of the long holiday weekend and where U.S./China trade relations will be next Tuesday. Fears that the strained relationship will result in a breakdown in the phase-one trade deal continue to increase. The market will be highly dependent on increased Chinese buying of corn, ethanol and DDGs.

President Xi Jinping’s renewed push to ram through national security legislation on Hong Kong signals China’s Communist Party is feeling the pressure to put down protests there and on the mainland. The Covid-19 outbreak has put millions out of work in China and ravaged the economy, forcing Xi to abandon goals to improve Chinese incomes that have underpinned his legitimacy. At the opening of the National People’s Congress in Beijing today, the party didn’t announce an annual growth target for the first time in decades due to “great uncertainty” in the world economy. The focus was squarely on creating jobs.

30-day outlook: The rally in U.S. Gulf corn premiums this week amid logistics and light farmer selling pushed South American corn offers well below the America export prices. Argentine corn for June and July is offered about 30 cents per bu. below the U.S. with Brazil showing more aggressive selling in July and August. That has curbed any interest in U.S. corn. As CBOT corn prices have traded sideways for the past three weeks, world export prices have slipped lower which will weigh on exports and futures market sentiment.

 90-day outlook:  The outlook for egg sets, feeder cattle placements and the U.S. hog herd is rather pessimistic with corn feed consumption to lag well beyond the summer. While U.S. ethanol production rebounded to a six-week high it still dramatically below pre-Covid-19 levels. While Americans are driving more, don’t look for widespread travel this summer, suggesting a slow recovery in ethanol production. Ethanol producers will be cautious about getting ahead of gasoline consumption for fear of building inventories.

What to do: Get current with advised marketings on price rebounds. Hedgers should make sure the stop-close-only orders to exit the hedges are up to date.

Hedgers: You should have 50% of 2019-crop hedged in July futures $3.28 1/2 with a stop close only order to exit at $3.31 and 50% of expected 2020-crop hedged in December futures at $3.43 1/4 with a stop close only order to exit at $3.43. You should be 50% priced in the cash market on 2019-crop.

Cash-only marketers: You should be 60% priced on 2019-crop.

Soybeans

Price action: July soybean futures closed the day Friday down 1 3/4 cents at $8.33 1/4, and for the week lost 5 1/4 cents. July soybean meal gained $1.60 Friday, paring this week’s decline to $3.40. Prices Thursday hit a contract low. July soybean oil futures closed down 47 points Friday at 26.64 and closed at a technically bearish weekly low close. Prices did gain 6 points on the week.

5-day outlook: The soybean bulls faded late this week to suggest some follow-through selling pressure on Tuesday, after the three-day holiday weekend. The soybean meal futures market saw some tepid short covering Friday, but the meal bulls will have to shift into a higher gear for the soybean market to sustain any kind of a price uptrend.

Deteriorating U.S.-China relations are also scaring the soybean market bulls. A further negative twist occurred on Friday as China unveiled details about its plan to impose a national security law in Hong Kong that could see mainland intelligence agencies set up bases in the global financial hub. U.S. Secretary of State Mike Pompeo on Friday rebuked China for its move, calling it arbitrary and disastrous and saying it could have an impact on the favorable U.S. treatment of Hong Kong. Traders are now even more worried the U.S. could implement new trade tariffs and other sanctions against China that could prompt that nation to abandon its “Phase 1” trade pledge to buy more U.S. ag products.

30-day outlook: The start to the 2020 growing season supports a strong U.S. soybean yield outlook. Moving into June, weather patterns in the Midwest could become more market-sensitive, especially if North American and European businesses continue to reopen and marketplace focus may turn to other matters besides the Covid-19 pandemic. Some long-range weather forecasts are already calling for a non-problematic growing season for the U.S. soybean and corn crops. Bean market bulls will continue to look for better demand coming from China, per its commitments to the U.S. as part of the Phase 1 trade deal reached early this year.

90-day outlook: Two key markets to keep a closer eye on in the coming weeks are the crude oil futures market and the U.S. stock market. If those two markets continue to recover—or can avoid sharp sell-offs—then that would be a solid sign the U.S. grain markets may be building major bottoms this spring and can at least grind sideways in the coming months. Remember, too, that more years than not there is some degree of a weather scare that develops in the soybean futures markets during the summer months.

What to do: Get current with advised old-crop sales. A push above the $8.65 area in July futures would likely encourage us to recommend further trimming old-crop inventories.

Hedgers: You should be 70% sold on 2019-crop in the cash market.

Cash-only marketers: You should be 70% sold on 2019-crop.

Wheat

Price action: July soft red winter wheat futures closed down 7 1/4 cents on Friday, at $5.08 3/4, and for the week did gain 8 1/2 cents. July hard red winter wheat futures on Friday fell 10 cents to $4.44 1/2 and for the week fell 7 3/4 cents. Spring wheat futures gained 6 ¾ cents.

5-day outlook: Prices were pressured Friday on better rain forecasts for next week in southern Europe and parts of the Black Sea region. U.S. futures prices next week will likely continue to follow Paris and Black Sea futures. Rains are also forecast for the U.S. Plains in the coming days, which will aid yields but may hurt protein levels. There is talk that millers are beginning to shop for higher protein supplies. Escalating China-U.S. tensions could also put a damper on the wheat market next week.

30-day outlook: Smaller U.S. crop estimates from this week’s tour of fields in the Plains could put a floor under the wheat market in the coming weeks. However, export demand has been routine and more business is needed to sustain any futures price rallies.

90-day outlook: Wheat is a leading global food staple. Any notions of smaller supplies would likely trigger a quick boost in importer buying. When world wheat crop outlooks decline, wheat futures tend to bottom in April and May. Spring wheat futures this week saw some buying interest on slow planting progress across the Northern Plains and Canadian Prairies, increasing risks for lower output. Record Russian domestic wheat and flour prices are increasing demand for stockpiling high-protein wheat supplies.

What to do: Wait for an extended price recovery to make additional new-crop cash sales.

Hedgers: You should have exited all hedges. You should be 100% sold on 2019-crop in the cash market. You should also have 30% of expected 2020-crop production sold via hedge-to-arrive contracts for harvest delivery.

Cash-only marketers: You should be 100% sold on 2019-crop. You should have 30% of expected 2020-crop production sold via hedge-to-arrive contracts for harvest delivery.

Cotton

Price action: Cotton futures finished 45 to 89 points lower through the March 2021 contract today. For the week, July cotton futures dropped 64 points and the December contract slipped 36 points.

5-day outlook: Cotton futures hinted that the corrective rebound from the early April lows could be stalling and the market is ready to roll over. But the uptrend remains intact. Key next week will be whether bulls can defend uptrending support. Violation of the uptrend would point to an extended pullback. But if the uptrend remains intact, bull could make another move to the upside.

30-day outlook: More focus will shift to U.S. planted acreage over the next month as traders prepare for USDA’s Acreage Report at the end of June. Most traders feel USDA’s March planting intentions of 13.7 million acres was too high, but there’s great debate about how much acreage will decline from that level. Based on historical data the past 20 years, there are 90% odds acreage won’t shift more than 1.5 million acres from March intentions.

90-day outlook: The rebound in global textile demand from the Covid-19 pandemic is key to the long-term price outlook for cotton. But even if textile demand ramps up, the world is going to be saddled with too many cotton stocks, which caps upside potential. We intend to use any corrective rebound from the Covid-19 situation to actively sell 2020-crop production.

What to do: Get current with advised old- and new-crop marketings.  

Hedgers: You are 25% hedged on expected 2020-crop production in short December cotton futures at 78.94 cents. You should be 100% sold in the cash market on 2019-crop. 

Cash-only marketers:  You should be 100% sold on 2019-crop. You should also have 10% of expected 2020-crop production sold via hedge-to-arrive contracts for harvest delivery.