Crops Analysis | February 7, 2022
Price action: March corn futures rose 14 3/4 cents to $6.35 1/4, the highest closing price for a nearby contract since mid-July of last year. New-crop December futures rose 7 1/4 cents to $5.81, after posting a contract high at $5.82.
Fundamental analysis: Corn futures rose for a second straight session behind sharp gains in the soybean market, which surged to eight-month highs on expectations for drought-driven crop shortfalls in South America. USDA is widely expected to lower its production forecasts for Argentina and Brazil in its Supply and Demand Report on Wednesday, though it’s unlikely the numbers will drop as low as some private consultants project. USDA is expected to cut its Brazil corn crop estimate to 113.63 MMT from 115 MMT last month and its Argentina corn estimate to 52.16 MMT from 54 MMT, based on a Reuters survey of analysts. Barring another upswing in soybeans tomorrow, corn futures may settle into a consolidation mode ahead of USDA’s report.
Weekly USDA export inspections today were within trade expectations, but U.S. exports continue to lag last year’s levels. USDA reported 1.053 MMT (41.5 million bu.) of corn inspected for export during the week ended Feb. 3, up from 1.036 MMT the previous week. Expectations ranged from 975,000 MT to 1.3 MMT. For the 2021-22 marketing year to date, corn inspected for export totaled 18.6 MMT, down 14% from the same period in 2020-21.
Technical analysis: March corn futures gapped higher at the start of overnight trade and extended higher, as the bullish momentum that faltered last week gained renewed vigor. Bulls will seek to test the March contract high of $6.42 1/2, posted Jan. 31; failure to break above that mark may spark liquidation of at least some of large speculators’ hefty net long position. Sellers will be aiming to close the overnight gap between Friday’s high at $6.23 1/4 and today’s low at $6.24 3/4. Support includes last week’s low at $6.10 1/4, then at the 40- and 50-day moving averages at $6.06 1/2 and $6.01 3/4, respectively.
What to do: Get current with advised 2021- and 2022-crop sales.
Hedgers: You should be 80% priced in the cash market on 2021-crop. You should also have 30% of expected 2022-crop production forward priced for harvest delivery.
Cash-only marketers: You should be 80% priced on 2021-crop. You should also have 30% of expected 2022-crop production forward priced for harvest delivery.
Soybeans
Price action: Soybean futures started the week with strong gains of 20-plus cents. The March contract firmed 28 1/4 cents to $15.81 3/4, the highest close for a nearby contract since early June. Soymeal firmed roughly $8 to $10, with the March contract up $8.90 to $452.80. March soyoil slipped 20 points to 65.34 cents.
Fundamental analysis: Soybean futures surged on continued support from the two factors that have fueled recent strong gains – South American weather/crop concerns and strong fund buying. On the weather front, weekend rainfall was disappointing across areas of central and northern Argentina, Paraguay and southern Brazil. Forecasts signal mostly dry conditions will be seen across these areas the next 10 days to two weeks.
Funds were again active buyers in the soybean market, extending their net long position that grew to 172,822 futures and options contracts as of Feb. 1, the biggest since the week ended May 11. Since then, futures have rallied more than 50 cents, fueled by strong fund buying.
The buyer interest may slow and the market could face some corrective selling tomorrow as traders prepare for USDA’s Supply & Demand Report Wednesday. Traders are expecting a 40-million-bu. cut to USDA’s U.S. ending stocks forecast and reductions to production estimates for Brazil and Argentina. But the South American crop pegs will likely come in higher than private crop estimates, and the pre-report price surge will make it more difficult to get a bullish reaction.
Technical analysis: March soybean futures reached a contract high at $15.89 1/2. Next resistance is the psychological $16.00 mark, followed by the June 2021 high of $16.23 1/2 and the May 2021 high at $16.77 1/4 – both from the continuation chart. Today’s gap from $15.65 1/4 to $15.60 1/4 is initial support, followed by the 10-day moving average near $15.50 1/2.
What to do: Get current with advised 2021- and 2022-crop sales.
Hedgers: You should be 95% sold in the cash market on 2021-crop. You should also have 30% of expected 2022-crop production forward priced for harvest delivery.
Cash-only marketers: You should be 85% sold on 2021-crop. You should also have 30% of expected 2022-crop production forward sold for harvest delivery.
Price action: March SRW wheat rose 5 1/2 cents to $7.68 3/4, near mid-range. March HRW wheat rose 6 cents to $7.91 3/4, also near mid-range. March spring wheat rose 8 1/4 cents to $9.21 1/4.
Fundamental analysis: Wheat futures rose behind sharp gains in corn and soybean markets but could only catch modest bids, suggesting wheat will continue to be a laggard due in part to sluggish exports. Expanding drought in the U.S. Plains HRW belt and Russia-Ukraine tensions remain supportive factors for wheat futures, but the market appears to sense a Russian invasion is not imminent. Dryness in the Plains HRW belt will continue through Feb. 16, when a more active weather pattern arrives Feb. 18-22, which “may be the best opportunity in the next two weeks for some meaningful moisture in the region,” World Weather said. “The precipitation may not be enough to have much impact on drought status, but any moisture would be welcome.”
USDA reported 417,750 MT of wheat inspected for export during the week ended Feb. 3, up from 376,524 MT the previous week and at the high end of market expectations. So far in the 2021-22 marketing year, U.S. wheat export inspections trail year-ago levels by about 18%. USDA, in its Supply and Demand report Wednesday, is expected to lower its 2021-22 global ending wheat stocks estimate by about 60,000 MT, to 279.89 MMT, underscoring tight supplies for milling-quality wheat.
Large speculators boosted their bearish bets in the wheat market as prices fell in late January. The managed money’ net short in SRW wheat futures and options increased 13,025 contracts to 26,452 contracts for the week ended Feb. 1, according to the CFTC.
Technical analysis: SRW wheat bulls and bears are on a level near-term playing field. SRW bulls' next upside price objective is closing March futures above solid resistance at $8.00. Bears' next downside objective is closing prices below solid support at the January low of $7.35 1/2. First resistance is seen at today’s high of $7.76 1/2, then at $7.85. First support is seen at today’s low of $7.60, then at $7.50.
HRW bulls have a slight near-term advantage, with the next upside price objective a March futures close above solid resistance at the January high of $8.49 1/4. Bears' next downside objective is closing prices below solid support at the January low of $7.43 3/4. First resistance is seen at $8.00, then at $8.17. First support is seen at today’s low of $7.82 1/4, then at 7.69 1/4.
What to do: Get current with advised 2021- and 2022-crop sales.
Hedgers: You should be 80% priced in the cash market on 2021-crop. You have hedges covering 20% of 2021-crop in short March SRW wheat futures at $7.57. You should also have 30% of expected 2022-crop production forward priced for harvest delivery.
Cash-only marketers: You should be 80% priced on 2021-crop. You should also have 30% of expected 2022-crop production forward priced for harvest delivery.
Price action: March cotton futures fell 117 points to 125.57 cents per pound, the contract’s lowest settlement since Jan. 28. May futures fell 99 points to 123.00 cents.
Fundamental analysis: Cotton futures fell to the lowest levels in over a week as traders rolled positions from the March contract to May. Price action was otherwise sideways ahead of USDA’s Feb. 9 Supply and Demand report, which is expected to show a slight increase in U.S. production for the 2021-22 marketing year and slight decreases in U.S. exports and in U.S. and global ending stocks.
USDA is expected to raise its estimate for U.S. production to 17.65 million bales from 17.62 million bales currently, based on a Bloomberg survey of analysts. U.S. ending stocks for 2021-22 are expected to be increased to 3.29 million bales from 3.2 million bales and global ending stocks are expected to be decreased to 84.95 million bales from 85.01 million bales.
Large speculators raised their bullish bets in the cotton market late last month to the highest level since late November. The managed net long in cotton jumped 4,466 futures and options contracts to 80,862 contracts in the week to Feb. 1, based on CFTC data.
Technical analysis: Cotton bulls retain the technical advantage with prices in a two-month uptrend, but momentum slowed over the past week and the market may continue consolidating ahead of the USDA report. Upside objectives for bulls include closing March futures above solid resistance at 140.00 cents. For bears, downside objectives include closing futures below solid support at 120.00 cents. Initial resistance is seen at Friday’s high of 128.83 cents, then at the contract high of 129.37 cents. Initial support is seen at the 10-day moving average of 124.98 cents and last week’s low at 123.25 cents.
What to do: Get current with advised 2021- and 2022-crop sales.
Hedgers: You are 100% priced in the cash market on 2021-crop. You should also be 50% forward-priced for harvest delivery on expected 2022-crop production.
Cash-only marketers: You should be 90% priced on 2021-crop. You should also be 50% forward-priced for harvest delivery on expected 2022-crop production.
