Crops Analysis | May 18, 2022
Price action: July corn futures fell 19 1/4 cents to $7.81 1/2, while December futures fell 20 1/2 cents to $7.40 1/4, both closing lows so far this week.
Fundamental analysis: Corn futures fell sharply, erasing gains posted early this week, as spillover from a selloff in the wheat market and prospects for a resumption of grain shipments out of Ukraine sparked active profit-taking. U.N. chief Antonio Guterres was expected to disclose talks with Russia, Ukraine, Turkey, the U.S. and European Union aimed at restoring Ukraine grain shipments and reviving fertilizer exports from Russia and Belarus. A sharp drop in U.S. stocks and crude oil amid escalating concern record fuel prices could lead to recession also contributed to pressure across commodity markets.
Potential demand concerns are emerging, including disappointing weekly USDA export sales last week and a drop in ethanol production. U.S. ethanol production averaged 991,000 barrels per day (bpd) during the week ended May 13, unchanged from the previous week but down 4% from the corresponding week last year. That marked first weekly year-over-year decline in ethanol production since the week ended Sept. 3, 2021. Still, fundamentals lean bullish amid broader concern over shrinking global grain supplies and delayed U.S. planting reducing yield potential.
Technical analysis: Corn futures retain a bullish chart posture but upside momentum stalled over the past two sessions and prices may extend a sideways near-term pattern, assuming July futures can hold above some key initial support levels, including the 40-day moving average at $7.74 and this month’s low at $7.69. Initial resistance comes in around the 10-day moving average at $7.88 1/4 and Monday’s high at $8.10 1/4.
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.
Price action: July soybeans fell 15 1/4 cents to $16.62 3/4. July soybean meal rose $2.20 to $414.00. July soyoil fell 294 points to 80.55 cents.
Fundamental analysis: Soybean futures fell in a corrective pullback, with spreaders unwinding long soyoil-short soymeal spreads. Some bull spreading was also featured in soybeans as nearby July futures gained on new-crop November. Sharp losses in the corn, wheat and crude oil markets, along with steep losses in U.S. stocks, weighed on the soy complex. The broader bearish backdrop overshadowed fresh export business. USDA reported a daily U.S. soybean sale of 229,200 MT to “unknown destinations.” Thursday’s weekly USDA export sales report is expected to show net U.S. soybean sales of 150,000 to 500,000 MT in 2021-22 and sales of 50,000 to 600,000 MT in 2022-23.
Technical analysis: Soybean bulls still have a solid near-term technical advantage. The next near-term upside objective for bulls is closing July prices above solid resistance at $17.00. The next downside objective for bears is closing prices below solid support at $16.00. First resistance is seen at today’s high of $16.86 3/4, then at $17.00. First support is seen at $16.50, then at this week’s low of $16.45 1/4.
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.
Fundamental analysis: Heavy profit taking burdened wheat futures following the market’s rally to contract highs Tuesday. Selling pressure was also tied to reports grain shipments from Ukraine may resume and to prospects for larger production in Russia. Russia’s wheat crop may reach 85 MMT this year, the head of IKAR ag consultancy said, in what he called a “conservative” estimate. SovEcon raised its Russian wheat crop estimate to a record 88.6 MMT. Still, shrinking global grain supplies remain a longer-term concern.
In the U.S., drought continues to stress the winter wheat crop, while spring wheat planting remains behind schedule. Crop scouts on day one of the Wheat Quality Council HRW tour found an average yield of 39.5 bu. per acre in northern Kansas. That’s down from 59.2 bu. in that area last year and compares to a five-year average of 46.9 bu. Thursday’s weekly USDA export sales report is expected to show net U.S. wheat sales of negative-50,000 to 150,000 MT in 2021-22 and 50,000 to 250,000 MT in 2022-23.
Technical analysis: Winter wheat bulls still hold a solid near-term technical advantage. However, strong follow-through selling pressure Thursday would suggest near-term market tops are in place. For now, six-week price uptrends are in place on the daily bar charts. SRW bulls' next upside objective is closing July prices above solid resistance at the record high of $13.40. The bears' next downside objective is closing prices below solid technical support at $11.00. First resistance is seen at $12.50 and then at the contract high of $12.84. First support is seen at $11.98 1/2, which is the bottom of this week’s upside price gap on the daily bar chart, and then at $11.50.
HRW bulls' next upside price objective is closing July prices above solid technical resistance at the record high of $13.84 3/4. The bears' next downside objective is closing prices below solid technical support at $12.00. First resistance is seen at $13.50 and then at the record high of $13.84 3/4, basis nearby futures. First support is seen at $12.92, which is the bottom of this week’s upside price gap on the daily chart, and then at $12.50.
What to do: Get current with advised 2021- and 2022-crop sales.
Hedgers: You should be 100% sold on 2021-crop in the cash market. You should have 50% of expected 2022-crop forward-sold for harvest delivery.
Cash-only marketers: You should be 100% sold on 2021-crop. You should have 50% of expected 2022-crop forward-sold for harvest delivery.
Price action: July cotton tumbled 399 points to 144.47 cents per pound, while new-crop December fell 318 points to 129.18 cents.
Fundamental analysis: Cotton futures dropped in step with sharp losses across commodity markets and U.S. stocks, as disappointing retailer earnings drove concern that record gasoline prices are pushing the U.S. toward recession. For cotton, little has changed from a supply standpoint. Strong exports have substantially reduced domestic stockpiles and powered the market to elevated levels, while fall 2022 crop prospects look poor due to the Southwest drought. Demand is a significant concern, with apparel demand among the first consumer segments to weaken if a recession is in the works. U.S. dollar strength in apparent response to safe-haven buying also worked against cotton bulls due to the domestic industry’s reliance on export demand. Cotton traders will likely be keeping a close eye on the stock indexes in the days ahead.
Technical analysis: Today’s drop greatly reduced bullish traders’ technical advantage, since it carried July futures below what had been solid support around 144.78 cents per pound. That level now marks initial resistance, with backing from yesterday’s high at 151.95, then at the contract high of 155.95. Initial support is marked by the uptrend line drawn across the contract’s March 15 and April 25 lows at 113.61 and 132.33, respectively, which is now located at 144.02. That’s backed by its 40-day moving average near 139.53, then the March 28 high of 137.99. A drop below that level would have bears targeting the 130.00 level.
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.
