Crops Analysis | July 5, 2022
Price action: December corn fell 29 cents to $5.78 1/2, the contract’s lowest settlement since Feb. 4.
Fundamental analysis: Corn futures joined a broad commodity sell-off as escalating recession concerns helped send crude oil down nearly $9.00, while a surge in the U.S. dollar to a two-decade high also weighed on commodities. December corn gapped lower at today’s open in the wake of crop-benefitting rains of at least one inch to well over two inches fell over much of the Corn Belt the past 48 hours, with more on the way in the coming days. “Weather is turning more favorable for summer crops,” World Weather Inc. said. Rains should bring some relief to parched soils after a dry June as the corn crop nears pollination in coming weeks.
Steep drops in grain prices the past two weeks may lead to even more price pressure in the near term, with speculative funds rapidly paring back long exposure. Large speculators in late June reduced bullish bets in the corn market to the lowest level since mid-October, data from data from the U.S. Commodity Futures Trading Commission showed. Also today, USDA reported a disappointing 676,824 MT of U.S. corn inspected for export during the week ended June 30, down sharply from 1.247 MMT the previous week. Expectations ranged from 900,000 MT to 1.2 MMT.
This afternoon’s USDA weekly crop progress reports are expected to show the U.S. corn crop in 66% “good” to “excellent” condition, compared to 67% in the same categories last week and 64% last year at this time.
Technical analysis: December corn gapped lower on the daily bar chart, producing more serious near-term chart damage. The bears hold a near-term technical advantage. Importantly, there are no strong, early chart clues to suggest a market bottom is close at hand. The next upside price objective for the bulls is to close December prices above solid chart resistance at $6.00. The next downside target for the bears is closing prices below chart support at $5.50. First resistance is seen at $5.80 and then at $5.90. First support is at today’s low of $5.71 and then at $5.60.
What to do: Get current with advised 2021- and 2022-crop sales.
Hedgers: You should be 90% sold in the cash market on 2021-crop. You should have 50% of expected 2022-crop forward-sold for harvest delivery and a 10% hedge in December corn futures at $6.92.
Cash-only marketers: You should be 90% sold on 2021-crop. You should have 50% of expected 2022-crop forward-sold for harvest delivery.
Price action: November soybeans plummeted 79 1/4 cents to $13.16, the contract’s lowest closing price since $13.07 1/2 on Jan. 24. August soymeal fell $11.70 to $410.40 per ton. August soyoil fell 481 points to 59.62 cents per pound, a 6 1/2-month closing low.
Fundamental analysis: November soybeans gapped lower at today’s open and tumbled to the lowest levels in over five months on expectations weekend rains and crop-favoring weather will boost yield prospects. The Northern U.S. Plains and most of the Midwest “will see waves of rain periodically through the weekend with showers next week becoming a little less impressive, but will still occur periodically,” World Weather said. “Significant relief is expected to dry parts of Illinois, Indiana and Ohio.” The soy complex joined a broader sell-off across commodity markets driven by heavy fund liquidation and escalating concern a recession will curtail demand. Further downside is possible in grains with funds still holding historically high long exposure in the markets, though they have sold actively in recent sessions.
Recent rains may help lift recently slipping USDA crop ratings, but the weekend moisture may not show up this week. USDA is expected to rate 64% of the U.S. soybean crop in good-to-excellent condition as of Sunday, down from 65% the previous week. Also today, USDA reported a disappointing 354,987 MT (13.0 million bu.) of soybeans inspected for export during the week ended June 30, down from 475,556 MT the previous week. Expectations ranged from 400,000 to 500,000 MT.
Technical analysis: Charts are in near total breakdown in soybeans and many other ag commodities and accelerating bearish sentiment could keep prices under pressure for the near term. Downside targets for bears include the $13.00 level, the mid-January low at $12.76 and $12.50. Today’s weak open left a wide gap between Friday’s low at $13.91 1/4 and today’s high of $13.74 1/2, which now serves as an initial resistance level. November soybeans ended today with a Relative Strength Index (RSI) of 26, well into oversold territory, which could encourage some corrective buying this week.
What to do: Get current with advised cash sales and the 2022-crop hedge.
Cash-only marketers: You should be 85% sold on 2021-crop. You should be 50% forward-priced on expected 2022-crop for harvest delivery.
Price action: September SRW wheat tumbled 39 cents to $8.07, the contract’s lowest closing price since $8.02 1/2 on Feb. 18. September HRW wheat sank 51 1/2 cents to $8.62, as a 4 1/2-month closing low. September spring wheat fell 58 cents to $8.90, a five-month low.
Fundamental analysis: Wheat futures extended last week’s nosedive as escalating recession concerns and heavy, chart-driven fund selling fueled a broad-based sell-off across commodity markets, with front-month crude oil sinking over $9.00 to two-month lows. Having the U.S. dollar surge to a fresh 20-year high also undercut the U.S. commodity markets, since that implicitly increased the cost of U.S. goods to foreign buyers. Expanding U.S. harvest pressure, prospects for a bigger crop in Canada and signs of progress in efforts to ship grain out of Ukraine also weighed on wheat futures. Early today, Statistics Canada reported all-wheat plantings at 25.4 million acres, above the 24.7 million acres traders expected.
Plains farmers likely made another good jump in winter wheat harvest last week. The crop was 57% harvested as of the start of this week, based on a Reuters survey of analysts, up from 41% the previous week. USDA will update progress and crop ratings later today. Also today, USDA reported a disappointing 111,830 MT (4.1 million bu.) of wheat inspected for export during the week ended June 30, down from 352,894 MT the previous week and further underscoring the U.S. grain’s uncompetitive position on global markets. Expectations ranged from 300,000 to 500,000 MT.
Technical analysis: Wheat’s bearish chart standing expanded with today’s steep declines. September SRW has dropped almost $5.00, or nearly 40% from the contract high of $12.85 posted in mid-May and may have further downside, especially with funds cutting net long positions for six consecutive weeks and moving closer toward a net short (the managed money net long was just 1,020 futures and options contracts as of June 28). Bears are likely targeting today’s low at $8.04 1/2, the $8.00 level and the February low of $7.44 1/4. Initial resistance is seen at today’s high at $8.42 1/2 and the 10-day moving average at $9.18.
What to do: Get current with advised sales and hedges.
Hedgers: You should be 85% sold in the cash market on 2022-crop, with the remaining 15% hedged in short December SRW futures at $10.22. You should be 30% forward-priced on expected 2023-crop for harvest delivery next year. You should be 100% sold on 2021-crop in the cash market.
Cash-only marketers: You should be 85% sold on 2022-crop. You should also be 30% forward-priced on expected 2023-crop production for harvest delivery next year. You should be 100% sold on 2021-crop.
Price action: December cotton dropped the 400-pojnt daily limit to settle at 93.48 cents per pound.
Fundamental analysis: Cotton futures fell, joining other commodity markets under pressure from dollar strength and recession concerns. Investors are anticipating considerable economic weakness in the U.S. and around the world during the second half of the year. Given USDA’s acreage boost in a report last week, new-crop cotton price prospects seem diminished. USDA’s weekly crop progress update later today will be closely studied.
Conversely, with the Fed set on a path of substantial interest rate increases during the coming months, the value of the U.S. dollar jumped to its highest level since early-December 2002. Given the U.S. cotton industry’s heavy reliance upon exports, this could be bearish for prices. Still, the stock indexes rebounded significantly from their morning lows, which may trigger futures rebound Wednesday.
Technical analysis: Bears still hold a short-term technical advantage in December cotton, especially after bulls proved unable to mount a serious challenge of resistance at the contract’s 10-day moving average near 98.10. Look for additional resistance between last Thursday’s high of 99.49 and the psychological 100.00 level, with a breakout above that range likely having bulls targeting the five-cent interval levels (for example, 105.00 and 110.00 cents).
Given today’s drop to limit-down levels, a bearish followthrough is likely looming. We see initial support at last Tuesday’s low of 91.20, with stronger support seeming likely to emerge at the psychological 90.00-cent level. Bears would also be targeting the 5.00-cent levels (85.00, 80.00) on a fresh breakdown.
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 100% sold on 2021-crop. You should also be 50% forward-priced for harvest delivery on expected 2022-crop production.
