Crops Analysis | May 12, 2022
Price action: July corn futures rose 3 cents to $7.91 1/2, the contract’s highest closing price since May 5. December futures surged 17 1/4 cents to $7.53, a lifetime high settlement for the contract.
Fundamental analysis: New-crop futures led the corn market higher after USDA lowered its yield projection more than expected, fueling concern that weather-delayed U.S. plantings will further tighten global grain supplies with drought in South American and war in Ukraine already disrupting markets. USDA, in its monthly Supply and Demand Report, dropped its 2022-23 U.S. corn yield estimate to 177 bu. per acre, down 4 bu. from a previous trendline forecast and unchanged from 2021-22. Analysts expected a yield closer to 179.6 bu. per acre. The yield projection “is based on a weather-adjusted trend, estimated using the 1988-2021 time period, assuming normal summer growing season weather but lower to reflect the slow pace of planting progress as of early May,” USDA said in today’s report.
The yield surprise overshadowed other USDA figures that leaned more bearish. USDA estimated corn stocks at the end of the 2022-23 marketing year at 1.36 billion bu., down 80 million bu. from this year but 8 million bu. above the average pre-report trade estimate. Also today, USDA announced daily sales of 612,000 MT of corn to China, with 68,000 MT for 2021-22 and 544,000 MT for 2022-23. Today’s report was USDA’s first corn sales announcement to China since April 28.
Technical analysis: Corn futures posted the third straight daily gain and remain firmly bullish, though July contract pulled back from an initial post-USDA upturn and ended near the middle of the day’s range. New-crop December, by contrast, closed near its high. July futures are poised to post a fifth weekly gain in the past six and could further strengthen the market’s technical standing with a close above the 20-day moving average at $7.96 and/or $8.00. A strong close Friday could have bulls targeting the contract high at $8.24 1/2, posted April 29, but the market could also be vulnerable to some pre-weekend profit-taking. Initial support is seen at this week’s low of $7.69.
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.
Fundamental analysis: Nearby soybean futures rose for a third consecutive day as a tightening global grain supply outlook overshadowed USDA’s projection for a record soybean crop and higher supplies. In its Supply and Demand update, USDA estimated 2022-23 U.S. soybean production at an all-time high of 4.64 billion bu., about 27 million bu. above analysts’ expectations and 205 million bu. above 2021-22 production. USDA also lowered estimated 2021-22 U.S. ending stocks to 235 million bu., down 25 million bu. from a previous forecast about 10 million bu. above expectations. USDA also increased estimated exports 25 million bushels (to 2.14 billion bu.) and left crush unchanged at 2.215 billion bu.
Disappointing USDA export sales contributed to early pressure on soybeans. USDA reported net weekly soybean sales at 143,700 MT for 2021-22, down 80% from the previous week, down 74% from the prior four-week average and a marketing-year low. Net sales for 2022-23 totaled 77,300 MT, including 66,000 MT for “unknown destinations.” Sales were near or below the low end of expectations ranging from 100,000 to 600,000 MT for both marketing years.
Technical analysis: Soybean technicals still lean bullish longer-term but nearby futures remain in a three-week downtrend. The July contract failed to generate buying interest at today’s high of $16.27 1/4, which coincides with the 10-day moving average, and is poised for a third consecutive weekly decline. Failure to hold above last week’s low at $15.78 could have bears targeting the 100-day moving average at $15.63 1/2 and the April low at $15.60 1/2. Further upside resistance includes the 20-day moving average at $16.58 1/4. A prolonged soymeal slump remains a bearish factor for soybeans.
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 rose 65 3/4 cents to $11.78 3/4, a two-month high. July HRW wheat rose 69 1/2 cents to $12.70, a lifetime-high close, while nearby HRW posted a 14-year high. July spring wheat rose the daily 60-cent limit to $13.16, a lifetime-high close.
Fundamental analysis: The wheat markets got a bullish surprise in today’s USDA May Supply and Demand report. USDA’s initial U.S. winter wheat crop forecast is 103 million bu. below last year and 65 million bu. below trade expectations. USDA estimated the winter wheat yield at 47.9 bu. per acre, down 2.3 bu. from last year. U.S. harvested acres were seen at 24.499 million, down 965,000 acres from last year. USDA said abandonment for winter wheat is the highest since 2002. Old-crop U.S. wheat carryover was pegged down 23 million bu. from last month and fell 31 million bu. below the average trade estimate. USDA projected a 2022-23 national average on-farm cash wheat price of $10.75.
Wheat traders on this day chose to overlook another bearish weekly USDA export sales report for wheat. Net weekly U.S. sales totaled 14,100 MT for 2021-22, down 88% from the previous week, down 79% from the prior four-week average and a marketing year low. Net sales for 2022-23 totaled 124,300 MT.
Technical analysis: Winter wheat futures bulls have the solid overall near-term technical advantage and gained more power today. Six-week-old price uptrends are in place on the daily bar charts for SRW and HRW. SRW bulls' next upside price objective is closing July prices above solid technical resistance at the contract high of $12.78 1/4. The bears' next downside objective is closing prices below solid technical support at the May low of $10.34 1/4. First resistance is seen at today’s high of $11.83 and then at $12.00. First support is seen at $11.43 1/2 and then at $11.20.
HRW bulls' next upside price objective is closing July prices above solid technical resistance at the record high of $13.84 3/4, scored in 2008. The bears' next downside objective is closing prices below solid technical support at this week’s low of $11.56 3/4. First resistance is seen at $13.00 and then at $13.25. First support is seen at $12.50 and then at $12.25.
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 rose 193 points to 145.53 cents per pound, while new-crop December surged 292 points to 127.67 cents.
Fundamental analysis: USDA’s Supply and Demand report encouraged market bulls. While USDA projects U.S. plantings to increase 1.01 million acres, estimated production came in 1.02 million bales below the latest old-crop estimate (at 16.50 million and 17.52 million bales, respectively). This reflects a major abandonment forecast for 2022-23 at 3.09 million acres, due to the ongoing Southwest drought. The elimination of a huge swath of poor cotton boosted the forecast national yield to 867 pounds per acre versus 819 pounds last fall. U.S. exports are seen dropping just 250,000 bales to 14.50 million from this year’s 14.75 million figure (unchanged from April). The net of the various forecasts was a projected 500,000-bale drop in the U.S. cotton carryout for 2022-23 to just 2.90 million bales.
USDA’s weekly export sales held mixed results, with 2021-22 sales reaching just 27,500 running bales, about half the previous marketing-year low. In contrast, new-crop sales at 90,600 bales easily tripled that figure. Shipments at 364,519 bales were rather impressive, but certainly could have been better. The contrast in the old- and new-crop sales figures will likely grow in the coming weeks, since old-crop sales at this point will be calling for shipment before the July 31 end to the current crop year. That’s less than two months away.
Technical analysis: Bulls still own the technical advantage in July cotton futures, despite their inability to force a move above initial resistance at the contract’s 10-day moving average near 147.00. A breakout above that level would again open the door to a test of the 150.00 level, then the contract high at 155.95. Support at the contract’s 20-day moving average of 143.15 held well today, but a close below that point would have bears targeting the 40-day moving average at 137.15, then 135.00 and 130.00.
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.
