Crops Analysis

Posted on Wed, 04/08/2020 - 15:36

Corn

Price action:  May corn futures closed down 1 1/2 cents at $3.30 today and December futures fell 1 3/4 cents at $3.49 1/4.

Fundamental analysis: Prices were pressured after the latest weekly U.S. ethanol data that confirmed the drastic cuts in production amid talk cash crude oil prices are near zero or, in the case of cash Canadian oil, trading negative—meaning producers are paying someone to take away supplies. Ethanol production tumbled 168,000 barrels per day to a record low 672,000 barrels per day last week. Inventories surged another 1.374 million barrels to a record 27.091 million barrels as gasoline demand fell to a record low.

Thursday’s USDA WASDE report will implement the March 1 stocks report into its numbers. Traders are looking for slightly bearish U.S. corn ending stocks. Traders are eager to see how much USDA cuts its ethanol demand forecasts and if it makes any changes to exports or feed demand. Traders will also be watching the expected crop cuts in South America from USDA and Brazil’s Conab on Thursday.

There have been rumors this week of China buyers shopping for U.S. corn, but USDA made no such announcements Wednesday morning, which was a disappointment. Overall U.S. corn demand is improving, with fresh U.S. sales to several Asian nation’s this week and U.S. corn prices very competitive versus other origins and other feed grains. The weekly USDA export sales report on Thursday is expected to show 2019-20 U.S. corn sales of 700,000 MT to 1.2 MMT in the latest reporting week. The 2020-21 marketing year is expected to see corn sales between 500,000 and 700,000 MT.

Technical analysis: The corn bears have the solid overall near-term technical advantage. Prices are in a nine-week-old downtrend on the daily bar chart. The next downside target is longer-term support at $3.18. The next upside price objective for the bulls is to close May prices above solid chart resistance at $3.45. The next downside price objective for the bears is closing prices below solid support at $3.18. First resistance is seen at this week’s high of $3.35 1/2 and then at $3.38. First support is seen at $3.28 and then at the contract low of $3.25 1/2.

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 saw two-sided action overnight, spent most of the day session in positive territory, but was only able to muster a midrange close, with May futures down a quarter cent and deferred contracts ½ cent to 3 ¾ cents higher. Soymeal also favored the upside today but delivered a lackluster close with futures ending mixed to higher. Soyoil settled low-range and down roughly 20 to 30 points. 

Fundamental analysis: Corrective buying in the soybean market faded as the day progressed, with traders looking ahead to USDA’s Supply & Demand update that is expected to include increases to its U.S. soybean carryover estimate. Global carryover is expected to decline from March, however, in part due to smaller soybean crop estimates out of South America.

While Brazilian exports of soybeans and other commodities have continued to flow (albeit with some delays) in the face of the coronavirus pandemic, Argentina has had issues getting supplies to crushers and ports. While the situation had seemed to be improving of late, the country now has low water levels on its important Parana River with which to contend (see “Evening Report”).

New purchases by China are likely needed to spur buying in the soybean market beyond corrective trade. While Chinese crushers have been running low on soybeans, the country has opted to release state reserves to fill the gap as it waits for Brazilian supplies to arrive.

Technical analysis: May soybean futures have moved sideways over the past week, with the $8.50 area offering near-term support and the $8.70 level near-term resistance. Traders could take a cautious stance again tomorrow as they head into a three-day weekend, especially with USDA slated to update its balance sheet at 11:00 a.m. CT. Tougher resistance resides at the late-March high of $8.97. Contract-low support stands 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.

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:  Mixed to mostly higher finishes but down from session highs. May SRW fell a penny to $5.48 1/4 and May HRW rose 4 3/4 to $4.78. Spring wheat futures gained about a nickel.

Fundamental analysis: Wheat rose early on weather concerns but pared the rally into the close ahead of the three-day holiday weekend. The export story is building with several nations tendering for inventories. However, tomorrow’s weekly export sales report is unlikely to show any big improvement in U.S. sales last week.

The U.S. weather outlook is cold into next week. Most forecasts are not a serious threat for much of the Plains crops, but the outlook has gotten colder each day this week. Sunday night will be a volatile open depending on actual low temperatures and duration of the cold during the weekend. Rains are forecast in parts of the Black Sea region into next week, but amounts will be too light to provide boost to depleted soil moisture levels.

Tomorrow at 11 a.m. CDT the USDA will provide its monthly global supply and demand update. Traders are not looking for the government to make many big changes to its old-crop U.S. and world carryover projections. On May 12, USDA releases its first 2020-21 balance sheets.

Technical analysis: The lower close in May futures today prevented the daily momentum from turning back to the upside. Prices closed below last week’s settlement at $5.49 ¼. That’s the key resistance for tomorrow’s close.  May HRW closed at the highest in six sessions and may be taking a lead from the SRW futures.

What to do: Wait on the next price rebound to get current with advised sales and to make new sales.

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: Futures extended the rally to a nine-session high. July futures rose 94 points to 53.84 cents and December gained 89 points to 55.37.

Fundamental analysis: Futures rose on hopes for the shelter-in-place guidelines to slowly disappear by early May and get consumers back to work and spending again. Much will depend on consumer confidence the Covid-19 disease has been beaten and people can return to normal lifestyles. The White House is developing plans to get the U.S. economy back in action that depend on testing far more Americans for the coronavirus than has been possible to date, according to Bloomberg News, citing people familiar with the matter. The effort would likely begin in smaller cities and towns in states that haven’t yet been heavily hit by the virus. Cities such as New York, Detroit, New Orleans and other places the president has described as “hot spots” would remain shuttered.

Wall St. rose today on speculation the coronavirus outbreak in the U.S. was nearing its peak.  China’s central bank will ramp up its policy easing to support the coronavirus-ravaged economy. The world’s top oil producers Saudi Arabia, Russia and the U.S. seem at odds today ahead of Thursday’s video conference on potential big cuts to global oil production to balance supply and slumping demand and boost prices. Crude oil prices edged higher, supported by hopes there will be an agreement to cut production.

Export sales come early on Thursday and are followed by the USDA supply and demand updates at 11 a.m. CDT.  Traders are looking for the agency to cut its export projection about 500,000 bales, to 16 million, and raise the world carryover forecasts about 4.3 million bales from 83.4 million projected in March.

Technical analysis: May futures completed about a 25% retracement of the drop from the January high today, closing above the 20-day moving average. Look for stronger resistance at 57.77 cents and 59.54 cents in the near term. Daily momentum is up and rising to the highest since mid-February, confirming the rally and outside day up reversal from April 6.

What to do: Marketing loan economics cover downside risk below 52 cents. Prepare to claim loan program payments on signs of a low. We’ll reassess upside potential once the panic selling subsides.  

Hedgers: You should have 65% of 2019-crop priced in the cash market.  

Cash-only marketers: You should be 65% priced on 2019-crop.