Crops Analysis | May 6, 2022
Price action: July corn futures fell 12 3/4 cents to $7.84 3/4, the contract’s lowest closing price since April 14 and a drop of 28 3/4 cents from the end of last week, ending four straight weeks of gains. December corn fell 17 3/4 cents to $7.20 3/4, and near a four-week closing low.
5-day outlook: Fund liquidation weighed on corn futures, producing a soft close that could generate followthough selling early next week. New-crop futures make take further pressure from expectations for faster planting progress next week. A “huge opportunity” for significant fieldwork will be opening next week across the U.S. Midwest and part of the mid-South as drier, warmer weather moves in, World Weather Inc. said today. Recent forecast model runs suggest the improved conditions “could last a while.” USDA reported 14% of the U.S. corn crop was planted as of May 1, up from 7% a week earlier but well-below the 33% average for the previous five years. USDA’s monthly Supply and Demand update May 12 could carry cuts to the corn balance sheet.
30-day outlook: Weather will be closely followed, with bullish near-term underpinnings in corn remaining largely intact, including recent export strength and dry conditions stressing Brazil’s safrinha crop. Even with warmer, drier conditions expected across the Midwest next week, planting will remain behind schedule and the mid-May point after which yield prospects often decline is rapidly approaching. Further planting delays may prompt some farmers to switch acres to soybeans.
90-day outlook: As U.S. planting wraps up, trade focus will shift to late-spring and summer weather in the Midwest. Ongoing concern over tight global grain supplies stemming in part from the Russia/Ukraine war may help keep prices elevated. Sustained export and domestic ethanol demand will be key to keeping nearby corn futures around the $8.00 level. USDA’s weekly export numbers this week indicated a recent slowdown in global demand, but strong buying in April, led by China, helped narrow a gap with last year’s sales. USDA reported net U.S. corn sales for the week ended April 28 at 782,500 MT for 2021-22, down 19% from the average for the previous four weeks. China has been largely absent from the U.S. market so far in May after purchasing around 4.54 MMT in April.
What to do: Get current with advised 2021- and 2022-crop sales.
Cash-only marketers: You should be 90% sold on 2021-crop. You should also have 40% of expected 2022-crop production forward-sold for harvest delivery.
5-day outlook: Soybeans posted sharp weekly declines and ended at four-week lows on technically driven fund liquidation and a steep drop in Malaysian palm oil. Prospects for improved planting conditions are weighing on new-crop contracts. Midwest weather and USDA data will be two key price influencers for the soy complex next week. USDA, in its Supply and Demand update May 12, is expected to hike its projection for 2021-22 domestic soybean crush in light of recent crushing totals in recent months. Expectations for rising inventories may exert further pressure on Malaysian palm oil prices.
30-day outlook: Soybean plantings, like corn, are behind schedule. But further corn delays past mid-May could compel some farmers to shift acres to soybeans, a bearish element for new-crop November futures. USDA early this week reported the U.S. soybean crop at 8% planted as of May 1, below the five-year average of 13%. Additionally, the soybean market is at the outset of a seasonally weak price period.
90-day outlook: Spring and summer Midwest weather as the growing season accelerates will be closely followed. Late-planted soybeans could be vulnerable to late-summer heat during critical flowering and pod-setting phases. Keeping nearby soybeans at elevated levels will require continued solid export demand, with smaller South American crops keeping the U.S. export window open longer than normal. USDA reported net weekly U.S. soybean sales at 734,600 MT for 2021-22, up 28% from the four-week average. Soybean export commitments are running 5% behind year-ago, compared with 6% behind last week last week.
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 40% of expected 2022-crop production forward-sold for harvest delivery.
Cash-only marketers: You should be 85% sold on 2021-crop. You should also have 40% of expected 2022-crop production forward-sold for harvest delivery.
Price action: July SRW wheat futures rose 2 cents to $11.08 1/2, up 52 3/4 cents on the week. July HRW wheat futures fell 6 1/2 cents to $11.70 1/2, up 64 3/4 cents for the week. July spring wheat fell 1 cent to $12.08 3/4, up 42 3/4 cents for the week.
5-day outlook: Wheat market bulls gained momentum this week on an outlook for reduced production from India that would further tighten global supplies. Also, Stats Canada today reported sharp declines in the country’s stocks of wheat and other grains at the end of March. Winter wheat markets’ resurgence suggests follow-through technical buying interest will surface early next week.
30-day outlook: Drought in much of U.S. winter and spring wheat country likely will support prices. Mostly beneficial precipitation has occurred in some growing regions recently. World Weather Inc. reported the northern U.S. Plains and Canada’s eastern Prairies will see rain a little too often to support favorable drying conditions and fieldwork will remain on hold for a while. Nearby spring wheat futures closed at the highest price since June of 2008 on rising concern over delayed seeding in the Northern Plains. Meantime, southwestern Canada’s Prairies will continue to struggle with dryness, although a few brief bouts of light rain will fall sporadically to support some fieldwork. Hotter temperatures in the southern U.S. Plains this weekend and early next week will accelerate evaporation and stress unirrigated wheat that has not seen much moisture recently, said the forecaster.
90-day outlook: The Russia-Ukraine war, which shows no signs of ending anytime soon, will continue to be closely followed and further disruptions to global grain trader are possible. An FAO official said nearly 25 MMT of grain is trapped in Ukraine, unable to leave the country due to infrastructure damage and blocked ports in the Black Sea. The war will very likely keep wheat futures prices elevated the next few months.
What to do: Get current with advised 2021- and 2022-crop sales.
Hedgers: You should be 90% sold on 2021-crop in the cash market. You have 10% of 2021-crop hedged in July SRW futures at $8.75 1/4. You should also have 50% of expected 2022-crop forward-sold for harvest delivery.
Cash-only marketers: You should be 90% sold on 2021-crop. You should also have 50% of expected 2022-crop forward-sold for harvest delivery.
Price action: July cotton futures tumbled 515 points to 143.61 cents per pound, down 202 points for the week.
5-day outlook: Stock market weakness suggesting growing investor concern over recession seemed to undermine cotton futures. The losses came despite USDA’s strong export sales report, as well as growing concerns about the global new-crop outlook. Not only is dryness dominating the Texas region in which U.S. cotton growing is concentrated, but extreme heat is endangering the crops in India and Pakistan, two countries very important to the global fiber market. If new-crop prospects don’t quickly improve, traders will increasingly focus on the weekly USDA Crop Progress reports released Monday afternoon. But a sustained equity market decline signifying rising expectations for a recession and weaker consumer apparel demand could exert increasing downward influence over prices.
30-day outlook: The domestic cotton situation, in which the price of a large number of “on-call” July cotton transactions will be determined by futures in coming weeks, suggests the potential for sustained price strength. The strong export situation also looks supportive, as does the inflationary trend seen lately in numerous commodities. But the tide may turn if traders and investors come to believe a U.S. and/or global recession is looming. This is especially true of the cotton market, since apparel is often one of the first consumer items to suffer in recessionary times.
90-day outlook: The new-crop situation is likely to come to the fore with the end of the 2021-22 cotton crop year July 31. That could prove true if heat and dryness persist across West Texas through spring and early summer. The potential for reduced Indian and Pakistani production would also favor bulls. But the outlook becomes much less promising if a recession occurs. That could prove particularly true if the U.S. dollar continues marching high and stifling U.S. cotton export demand in the process.
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.
