Crops Analysis

Posted on Thu, 03/26/2020 - 15:21

Corn

Price action: Corn futures battled back from earlier losses to finish steady to fractionally higher and finished high range for the day.

Fundamental analysis: Corn traders had a muted response to weekly export sales that totaled 1.814 MMT for 2019-20 and 82,900 MT for 2020-21. The weekly data included the 756,000 MT of corn sales to China that USDA announced last Friday. Since that data was already “in” the market, it wasn’t seen as fresh news. But the drop to the lowest level in front-month corn futures since July 2018 during the reporting period also triggered a rush of additional business. Still, corn exports remain a concern and now there are major worries about falling corn-for-ethanol demand.

It's likely going to take an influx of speculative buying to trigger an extended price recovery in the corn market. The catalyst for that will have to be something other than the demand side of the market. USDA’s Prospective Plantings and Quarterly Grain Stocks Reports next Tuesday will be the next focus, though both of those reports could be overshadowed by the ongoing Covid-19 situation. Sometimes all it takes for funds to flip the switch from “sell” to “buy” is prices getting cheap enough, though we doubt that will be the case in the current market environment. For now, the upside is limited to relatively minor corrections.

Technical analysis: May corn futures closed above the 10-day moving average for the first time since March 10. But the contract likely needs to close above the 20-day average at $3.61 3/4 today and the February low at $3.65 3/4 to give funds a technical signal to start actively covering short positions. Support is at last week’s contract low of $3.32, followed closely by long-term support in the $3.30 area on the weekly continuation chart.

What to do: You should have a standing order to sell another 15% of 2019-crop in the cash market if May futures hit $3.75. Be prepared to make 2020 crop sales if the old-crop order is triggered.

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: Soybean futures got off to a firmer start, softened but then pared losses into the close, with futures settling 1 ¼ cents lower in the front month and steady to 2 ½ cents higher in deferreds. Soymeal posted gains ranging from $1.70 to $2.40 and soybean oil posted losses around 15 points.

Fundamental analysis: The soybean market paused today after working higher since mid-month. Markets have been relieved Congress is slated to deliver a $2 trillion coronavirus aid package, but today’s unemployment claims data (see “Evening Report”) reminded of the economic toll the virus has already had on the U.S. and global economy.

Some support stemmed from an encouraging weekly export sales update that included 904,300 MT in sales for 2019-20, which China and unknown topping the list of buyers. Soyoil sales also hit a marketing year high. The data reminds that China is working toward fulfilling its Phase 1 ag purchase commitments. Meanwhile, Beijing crushers are increasingly frustrated with shipping delays out of Brazil that have forced some plants to idle lines or otherwise curtail production, despite strong profit margins. This could shift some business to the U.S. during Brazil’s prime shipping season.

Technical analysis: May soybean futures settled mid- to high-range, which could help the market to turn higher overnight. Support begins at yesterday’s high of $8.97 and the psychologically significant $9.00 level, with the March high of $9.12 ½ offering another target to the upside. Support begins in the $8.60 area, with contract-low support lying at $8.21.

What to do: You should have a standing order to sell 10% of 2019-crop in the cash market if May futures hit $8.92. Cancel the prior standing order.

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

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

Wheat

Price action: Futures ended lower and near session lows on profit taking following this week’s surge. May SRW futures fell 11 cents to $5.69 and May HRW wheat declined 13 3/4 cents to $4.87 1/4. Spring wheat futures were down about 6 cents.

Fundamental analysis: Russian President Putin called for the food supply chain, including Russian grain exports, to function normally during a state quarantine into early April. The news caused a relaxation in world wheat prices as export embargo fears calmed, at least for the moment.

This morning’s weekly USDA Export Sales Report showed better sales. Exporters sold 740,000 MT of wheat in the week ended March 19, up 73% from the prior four-week average and topping trade estimates for 200,000 to 500,000 MT. New-crop wheat sales were 366,400. China was the top buyer of both old- and new-crop wheat last week. Underlying support continues from increased demand from the Middle East and Africa, which consume 40% of world wheat trade. Continuity of supply chains remains a concern amid some bans, increased taxes and quarantines spreading in exporting nations. Consumers continue to stockpile bread, pasta and flour. China’s Commerce Ministry has stated that the country will expand the import of energy and agricultural products without offering details.

Traders are looking ahead of the March USDA stocks and acreage reports. March 1 wheat inventories seen falling to 1.432 billion bushels, down from 1.593 billion a year ago. Traders surveyed by Reuters are looking for spring wheat acreage to come in at 12.631 million, down slightly from 12.660 planted last year. Durum acres may rise to 1.512 million, up from 1.339 million last year, the survey showed.  Total acreage is expected at 44.982 million after farmers planted the smallest winter wheat acreage since 1909 and down from 45.158 million a year ago.  

Technical analysis: The chart picture is much improved after the surge in prices the past week. Today’s retreat was contained inside of yesterday’s range, a sign the markets is pausing. Still, a high-range weekly close on Friday would strengthen the technical picture for a quick resumption of the rally. Another pullback Friday and a close below $5.60 would be a warning that rally may be exhausted.

What to do: Get current with advised old- and new-crop sales on current strength.

Hedgers: You should be 90% priced 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 90% priced on 2019-crop. You should also have 30% of expected 2020-crop production sold via hedge-to-arrive contracts for harvest delivery.

Cotton

Price action: May cotton futures closed down 66 points at 52.78 cents, with December futures down 43 points at 54.61 cents.

Fundamental analysis: The cotton futures market traders today chose to focus on a stunning rise of 3.28 million in weekly U.S. jobless claims, reported this morning, instead of this week’s strong rebound in the U.S. stock market that saw U.S. indexes solidly higher in early-afternoon trading. Traders reckon next week’s U.S. jobless claims are likely to be just as bad, or worse, and focused on what the crippled U.S. and global economies are doing for consumer demand for cotton.

Today’s weekly USDA export sales report showed U.S. cotton sales of 277,100 running bales (RB) in the current marketing year. That’s down 19% from the previous week and down 23% from the four-week average. China took 44,000 RB. For the 2020-21 marketing year cotton sales of 120,100 RB, with China taking 17,600 of that. Shipments of 386,800 RB were up 5% from the previous week and saw 65,800 RB shipped to China.

Cotton market bulls are hoping the recent downdraft in prices is close to ending. The U.S. Senate approved a historic $2 trillion rescue plan late Wednesday night, putting pressure on the Democratic-led House to pass the bill quickly and send it to President Donald Trump for his signature.

With cotton prices now under the USDA loan rate, such could also provide a floor. Recent cotton export sales and shipments remain robust, overall, suggesting fears of reduced demand may be overblown.

Technical analysis: Bears have the solid overall near-term technical advantage amid a steep two-month-old price downtrend in place on the daily bar chart. The next upside price objective for the cotton bulls is to produce a close in May futures above solid technical resistance at 57.00 cents. The next downside price objective for the cotton bears is to close prices below solid technical support at 50.00 cents. First resistance is seen at this week’s high of 54.87 cents and then at 55.50 cents. First support is seen at Wednesday’s low of 52.22 cents and then at Tuesday’s low of 51.16 cents.

What to do: We’ll reassess once the panic selling subsides, which could occur soon.