Crops Analysis | July 8, 2022

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Corn

Price action: December corn futures surged 27 1/4 cents to $6.23 1/2, up 16 cents for the week and the contract’s highest closing price since June 29.

5-day outlook: The corn market came roaring back from a steep, post-July-4-holiday slump as December futures recovered from a five-month low at $5.66 1/2 posted Wednesday and ended with the contract’s first weekly gain in the past three. Price strength to a large degree reflected fund-driven corrective buying and bargain-hunting, with concern over an expected return of dry conditions to the Midwest beginning mid-July prompting traders to restore some weather premium to the market. USDA’s next weekly crop ratings Monday should indicate whether recent rains eased stress on crops. Earlier this week, USDA rated 64% of the corn crop either “good” or “excellent” as of Sunday, down from 67% in those categories and lower than trade expectations. USDA’s monthly Supply and Demand update Tuesday may include some small adjustments for the corn balance sheet.

30-day outlook: Midwest weather and pollination progress will be key price drivers the rest of July, and near-term forecasts late this week suggested conditions may not be ideal in many areas. “A transition to drier weather and less favorable crop conditions will begin Saturday and will continue through at least July 22, and possibly deeper into the month,” World Weather Inc. said today. “Subsoil moisture should be high enough to prevent serious crop stress in much of the Midwest during the next 10 days, but some crops in areas that missed out on significant rain this week should soon see rising levels of stress. Pollinating corn will be most vulnerable to significant declines in yield potentials if drier weather were to persist deeper into the second half of the month.”

90-day outlook: Longer-term market factors include the Russia-Ukraine war and global financial markets, which have been roiled by growing concerns over recession and expectations for further aggressive rate increases from the Federal Reserve. The “inflation trade” faded recently as crude oil and other commodities tumbled, which could generate to pressure on grains, especially from speculators. Continuing signs of soft export demand could limit price upside. Early today, USDA reported net weekly corn sales reductions of 66,600 MT for 2021-22, a marketing-year low and well under trade expectations. Net sales for 2022-23 totaled 111,200 MT, down 36% from the average of 172,520 MT for the previous four weeks.

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.

 

Soybeans

Price action: November soybeans jumped 31 cents to $13.96 1/2, up 1 1/4 cents for the week and the new-crop contract’s highest settlement since June 30. August soymeal rose $7.80 to $431.30 per ton and August soyoil rose 97 points to 62.59 cents per pound.

5-day outlook: Soybean futures joined a rally in corn and wheat and extended this week’s sharp corrective rebound that followed steep declines after the long holiday weekend. Late-week strength reflected short-covering as well as traders restoring some weather premium to new-crop prices in light of forecasts for a return of drier conditions in the Midwest starting mid-July. Additional price strength next week would further solidify a near-term bottom. Traders will watch USDA’s weekly ratings update Monday afternoon to see if recent rains finally reversed a nearly month-long slippage in crop conditions (soybeans’ good-to-excellent rating dropped from 70% on June 12 to 63% on July 3). USDA’s Supply and Demand update July 12 is expected to show a slight reduction in estimated 2021-22 U.S. ending stocks.

30-day outlook: Midwest weather will be critical to price direction the rest of July as soybeans approach critical reproductive phases in August. November soybeans bounced back sharply from a 5 1/2-month low at $13.02 1/2 posted earlier this week and could add additional weather premium if forecasts stay dry. Drier, milder weather expected next week will be followed by some warming and a little increase in rainfall in the second week, but no general soaking, World Weather said today. “The trend will be toward reducing this week’s beneficial moisture, but crop development should continue favorably in this first week of the outlook except in the areas that failed to get much rain this week… where there will be continued crop moisture stress. The second week of the outlook will trend drier throughout the Midwest and the levels of crop stress should gradually increase over time.”

90-day outlook: August weather will be closely followed as the crop shifts to blooming and pod-setting phases. USDA’s recent sharp reduction to estimated U.S. soybean plantings (to 88.325 million ac.) could help keep a long-term floor under prices. But continued weakness in export demand could limit upside. USDA earlier today reported net sales reductions of 160,000 MT of soybeans for the week ending June 30 (including 59,200 MT by China). Given the market’s sharp price drop, more near-term cancellations are possible. Key will be whether any sales cancellations are replaced by new purchases at lower prices. Net weekly soybean sales for 2022-23 totaled 240,100 MT, down 21% from the four-week average of about 305,000 MT.

What to do: Get current with advised cash sales and the 2022-crop hedge.

Hedgers: You have 10% of expected 2022-crop production hedged in short November soybean futures at $14.73. You should be 50% forward-priced on expected 2022-crop for harvest delivery. You should be 95% sold in the cash market on 2021-crop.

Cash-only marketers: You should be 90% sold on 2021-crop. You also should be 50% forward-priced on expected 2022-crop for harvest delivery.

 

Wheat

Price action: September SRW wheat rose 55 cents to $8.91 1/2, up 45 1/2 cents for the week. September HRW wheat rose 56 1/2 cents to $9.45 3/4, up 32 1/4 cents for the week. September spring wheat surged 57 1/4 cents to $9.91 3/4, up 45 3/4 cents for the week.

5-day outlook: Wheat led grain futures sharply higher to end the week amid bargain-buying and signs the recent price slump has stirred fresh global demand. Technically bullish weekly high closes posted by September contracts suggest the markets have put in near-term bottoms. One key for bulls next week will be to at least hold this week’s gains. Wheat traders next week will be looking to the corn and soybean markets for direction, as those crops are nearing their key growth/development periods and the Midwest weather forecasts will very likely dictate futures price direction.

USDA, in its Crop Production Report July 12, is expected to estimate other U.S. spring wheat production at 458 million bu., which we believe may be about 30 million bu. too low. USDA’s 2022-23 all U.S. wheat production estimate is seen at about 1.744 billion bushels, based on the average analyst estimate. That compares with 1.737 billion bushels in the June report and 1.646 billion last year.

30-day outlook: Wheat futures earlier this week fell back to pre-Russia-Ukraine war levels seen in mid-February. While wheat futures could follow any further shorter-term corrective or weather market rallies in corn and soybeans in the coming days/weeks, winter wheat harvest pressure and related commercial hedging in the near term are likely to cap gains in wheat futures prices. Spring wheat futures prices also held up this week, underscoring ongoing uncertainty over that crop’s acreage and yield prospects.

90-day outlook: USDA today reported net weekly U.S. wheat sales at 286,400 MT for 2022-23, down 31% from an average of 415,577 MT for the previous four weeks. Sales were at the low end of expectations. If the wheat bulls want to see more upside price potential, the U.S. export pace will have to pick up in the coming weeks/months. That chore will be extra difficult as the U.S. dollar index this week hit a 20-year high, making domestic wheat even less competitive on the world markets.

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.

 

Cotton

Price action: December cotton jumped 375 points to 95.63 cents per pound, still down 185 points for the week.

5-day outlook: Cotton futures gained behind USDA’s weekly export sales numbers, with new-crop sales at a strong 381,900 running bales. Shipments at 377,800 RB was also price-supportive, although we believe USDA will ultimately trim its 2021-22 U.S. cotton export forecast. The same factors that dominated this week’s trading could easily do the same again next week, with Monday’s Crop Progress report holding implications for next year’s supply and Thursday’s Export Sales report reflecting likely demand. USDA’s July 12 Supply and Demand report may contain the expected adjustment to old-crop exports and 2021-22 carryout. Outside influences, particularly the economic outlook via the equity indexes and the U.S. dollar will be watched closely, while shifts in other commodities, particularly crude oil, will hold implications for the inflation outlook.

30-day outlook: Summer weather could become the dominant factor over the next month, especially if recent Texas dryness worsens. Crop ratings have fallen sharply from early-June levels, so much more of the same could power the market higher (as industry estimates of likely cotton acreage abandonment in west Texas climb). Expectations about inflation and recession prospects will also remain quite important to the industry and market observers. Having the U.S. dollar continue its recent surge could also undercut the market, since the U.S. cotton industry relies heavily upon export demand.  

90-day outlook: The same factors affecting short-term prospects will almost surely remain very important during late summer and early fall. One new possibility could affect prices, that of hurricanes hitting anywhere from the Carolinas to the south Texas coast. Any that bring lots of moisture and non-devastating winds might actually prove bearish, since they would tend to provide lots of moisture and do minimal damage. However, a later, more powerful storm that dumps oceans of rain upon cotton with open bolls and/or flattens plants, could do lots of damage and power a rally.

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 60% forward-priced on expected to 2022-crop production for harvest delivery.

Cash-only marketers: You should be 100% sold on 2021-crop. You should also be 60% forward-priced on expected to 2022-crop production for harvest delivery.

 

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