Crops Analysis | July 15, 2022

Corn ­

Price action: December futures closed up 2 3/4 cents at $6.03 3/4. It was down 19 3/4 week over week.

5-day outlook: December corn futures started the week by gapping higher into Sunday-night trade as trade focus was wrapped around shaky weather forecasts that were proving hot and dry through the crucial pollination phase for large portions of the Midwest. December futures were able to push through the psychological $6.50 mark, making highs on the week at $6.58 1/2. This enthusiasm quickly faded in true “Turnaround Tuesday” fashion after the July WASDE proved bearish as both domestic and global old-crop and new-crop carryovers were increased to levels larger than anticipated. The remainder of the week, December futures pivoted around $6.00, ultimately gaining the momentum to close above that resistance level Friday. Near term weather will continue to impact the direction of the corn market as traders intensely focus on forecasts throughout the Midwest. World Weather reports that, “Heat and stress to crops will increase and expand next week as impressive heat will arrive in the Plains and western Corn Belt.” Crop Progress estimates to be reported post close on Monday will also play a role in setting the trade tone for the week. Corn’s “good” to “excellent” rating remains at 64%, as it was unchanged in this week’s report.

30-day outlook: An agreement between Russia, Ukraine, Turkey and United Nations appears imminent as headlines containing positive comments surrounding the issue have surfaced over the course of the past week. However, many traders are skeptical Russia will follow through in good faith as the country launched a strike on the Ukrainian city of Vinnytsia, killing 23 people, a day after the agreement talks began. Further, according to analysts at the Kyiv School of Economics, the Russian-occupied peninsula of Crimea is shipping more than 50 times the volume of food it usually does at this time of year, indicating the likelihood that seized Ukrainian grain is being taken abroad. They have estimated that as of June, more than 1 million tons of grain and oil crops valued at nearly $600 million have been taken by Russia or damaged during the war. Russia purportedly denies stealing grain, heavily publicizing their interest in resuming exports from occupied ports.  

90-day outlook: The looming notion of a recession will continue to cast a shadow across the corn market as inflation continues to inch higher, up 1.3% from May to June, with the annualized rate of 9.1%, reaching its highest level in over 40 years. The unexpected rise has cast fear of the Fed boosting rates by 100 points as opposed to 75 in an effort to rein in the ongoing issue. Fed funds futures put the odds for a 100-basis-point rise at 83.3%, with a 16.7% chance of a 75-point increase. Increasing rates would continue to give the U.S. Dollar a leg up, expanding the likelihood of diminishing exports as it would further reduce foreign buying power. 

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 soybean futures closed the day up 1 1/4 cents at $13.42 1/4 and for the week lost 54 1/4 cents. August soybean meal futures fell $7.90 at $431 and on the week dropped only 30 cents. August bean oil rose 194 points at 60.08 cents and for the week fell 251 points.

5-day outlook: The bears had the better week in the soy complex, but a weather market may be again brewing in soybeans and corn. World Weather Inc. in a midday dispatch said a high-pressure ridge is expected to expand in the Midwest next week, “resulting in what may be the hottest temperatures of the summer in portions of the Plains and western Corn Belt. Extreme temperatures of 105 to 112 degrees may be possible. Much of the U.S. corn crop is nearing the pollination phase of growth, and if corn futures prices pop next week, soybeans will likely follow. Midwest weather will remain the main driver in the soybean complex the next several weeks.

Today’s NOPA crush report of 164.677 million bushels in June was down 6.400 million bushels from May. It is up from June 2021 at 152.410 million by 12.267 million. It is less than the June record of 167.263 million bushels in 2020. The NOPA soybean oil stocks totaled 1767 million pounds and down 7 million bushels from last month.

30-day outlook: The next few weeks, or longer, soybean traders will be extra focused on the key outside markets, especially as the U.S. dollar index this week soared to a 20-year high and shows now signs of topping out. Crude oil prices are headed the opposite direction and this week hit a three-month low. Recession fears in the U.S. and other major economies have spooked the raw commodity sector bulls so much that there are now many analysts saying inflationary pressures have peaked. These elements are not conducive for a bull market rally. Thus, bean bulls will need a weather scare to develop in order to boost prices in the coming weeks.

90-day outlook: U.S. soybean export sales this week were a marketing year low. Shipments were down 13% from the previous week and 16% from the 4-week average. Meal sales were down 95% from last week and meal exports were down 37% from the previous week. Soyoil sales were also down considerably from the week prior and down 54% from the 4-week average. These numbers are very worrisome for soybean complex bulls and also suggest the three markets have put in major tops and could see more downside price pressure in the near term. The strong U.S. dollar will not make it any easier for the U.S. to regain market share for soy sales on the world market.

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 closed down 18 1/4 cents at $7.76 3/4, lower by $1.14 3/4 week over week. September HRW wheat down 11 1/4 at $8.37 1/2, and off $1.08 1/4 from last week’s close. September HRS wheat ended the day 3 3/4 cents lower at $9.06 3/4, down 85 cents week over week.

5-day outlook: The wheat complex tumbled this week, washing out last week’s gains. Strength in the U.S. dollar and headlines of Russia, Ukraine, Turkey, and United Nations meeting to discuss the resumption of exports out of the Black Sea cast a bearish tone throughout the week. USDA’s WASDE report on Tuesday had the same effect as production estimates were increased in addition to old and new-crop carryovers. A seemingly bright spot was Thursday’s Export Sales report which showed strong wheat sales at 1,017,200 MT, 517,000 higher than the market was expecting, but it ultimately failed to offer the complex much of a boost.

September SRW futures ended Friday lower than the previous low of $7.78 1/2, putting new lows in at $7.65 3/4, and ultimately testing support at $7.68. Traders will continue to focus on additional meetings around opening Russian-occupied ports, as well as the U.S. dollar as rate increases seem probable as inflation continues to rise.

30-day outlook: A prospective rate hike at the next Federal Reserve meeting on July 26/27 will be at the forefront of trade in the coming days. An increase of 100 points is seeming more likely as inflation continues to run rampant. Additional rate hikes will likely continue to support the U.S. dollar, which set continuous 20-year highs this week, possibly slowing export activity as foreign buying power decreases.

90-day outlook: The wheat complex could be viewed as a buying opportunity as a strong selloff has occurred since mid-May. However, outside factors are causing traders to be leery of long positions in an increasingly unpredictable environment. The market seems satisfied with current supplies, making future acreage buying a less attractive notion in the coming months.

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: Cotton futures rebounded strongly from mid-week losses. December futures surged the expanded 5.00-cent daily limit and settled at 88.71 cents per pound Friday. However, that marked a 6.92-cent drop from last Friday’s close.

5-day outlook: Macroeconomic conditions seem to be driving action in cotton futures these days, with white fiber futures tending to move in concert with the equity indexes, which traders are watching as an indication of recession prospects, and opposite the U.S. dollar index, which seems to be viewed as an export demand gauge. We don’t see this changing next week, although some surprise on the weekly USDA Crop Progress report Monday afternoon could certainly affect short-term prospects. Surprising gains in Texas “good” to “excellent” rates likely undercut futures early last week. Next Thursday’s weekly USDA Export Sales report could also be the subject of keen attention, especially after this past week’s result almost surely disappointed cotton market bulls.

30-day outlook: Cotton traders will probably continue focusing upon the global economic situation during the coming weeks, since a U.S./global recession could crush consumer apparel demand. Still, the progress of and conditions affecting the 2022 U.S. cotton crop, along with export prospects, will likely remain the significant themes affecting the cotton market going forward. Traders will focus closely upon the USDA’s August 12 Crop Production report, since that will contain the department’s first field-based estimates of forthcoming yields and the size of the fall harvest. We should also expect a downward revision to 2021-22 cotton exports and a commensurate rise in ending stocks if export shipments don’t surge prior to the end of the crop year on July 31.   

90-day outlook:  Little seems likely to change during late summer and early fall in the sense that the global economy, the value of the dollar and export data will help track cotton demand developments, while weather and crop progress reports will provide clues as to the strength of forthcoming supply. As mentioned previously, having a major hurricane make landfall in the Southeast and/or on Texas Gulf Coast could be a wildcard for the market.

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.