Crops Analysis | July 22, 2022
Corn
Price action: December corn futures fell 9 1/4 cents to $5.64 1/4, down 39 1/2 cents for the week and the new-crop contract’s lowest closing price since $5.62 1/4 on Jan. 20.
5-day outlook: December corn briefly bounced back from overnight declines but soon faded to end at a six-month low amid expectations than rain and milder temperatures in the Midwest next week will aid the crop as it moves through its key pollination phase. Traders will closely monitor weather and pollination progress next week, and the Sunday night open of overnight trade will be one indication of whether and how widely any weekend rainfall reached the Midwest. USDA’s next weekly condition updates will offer an idea of whether corn continued to stabilize amid extreme Midwest heat. Early this week, USDA reported 64% of the U.S. corn crop in “good” or “excellent” condition as of July 17, unchanged from a week earlier and above the average analyst estimate of 63%. About 37% of the crop was silking, up from 15% the previous week but behind the five-year average of 48%.
30-day outlook: Most of the U.S. crop should have completed pollination by the end of July or early August, which means near-term weather will be a key price driver. U.S. weather is still expected to be favorable in the coming 10 days with rain for most areas, including some of the drier areas of the Plains and southwestern Corn Belt, World Weather Inc. said today. Beyond that period, weather is expected to trend drier and hotter, “with the heat first bubbling up in the central and southern Plains and southwestern Corn Belt.” Anecdotal reports from around the Midwest suggest a big crop is coming, though persistent drought in some areas may sustain uncertainty about record yield potential.
90-day outlook: An agreement announced today to reopen Ukrainian Black Sea ports for grain exports sent wheat futures tumbling near six-month lows and could burden corn prices as well if the deal eases disruptions to global grain supplies. Recession concerns may continue to hover over markets generally, any further declines in crude oil or other major commodities could spill into grains as well. Further declines in corn prices could stir renewed buying interest, though recent export numbers have been disappointing. USDA yesterday reported net weekly U.S. corn sales at 33,900 MT for the 2021-22 marketing year, down 43% from the previous week and down 82% from the four-week average. For 2022-23, net sales totaled 570,200 MT, up from 348,200 MT the previous week. Export commitments are running 13.4% behind year-ago.
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 rose 14 1/4 cents to $13.15 3/4, after rebounding from a six-month low of $12.88 1/2 in overnight trading. The new-crop contract was still down 26 1/2 cents for the week. August soymeal fell $2.90 to $431.50 and August soyoil rose 172 points to 60.32 cents.
5-day outlook: November soybeans rallied back from an overnight slide to a six-month low behind strength in crude oil and soyoil and a continued pullback in the U.S. dollar from 20-year highs. Concerns over a return of hot Midwest weather in August contributed to buying interest. Weather will remain the primary trade focus next week, particularly the extent of any weekend rains in the Midwest, and prospects for rains and a break from extreme heat this week. Traders will watch for signs of stabilization in USDA crop ratings. USDA earlier this week rated the soybean crop 61% “good” to “excellent” as of July 17, down from 62% a week earlier and the fifth straight weekly decline.
30-day outlook: Forecast for a hot, dry August across much of the Midwest helped soybean futures rally late this week and traders may keep some weather premium in prices for the next few weeks with the crop heading into flowering and pod-setting phases. Temperatures across most of the Midwest will likely be above normal during August, with below-normal precipitation expected for most of Iowa, Illinois and Indiana, according to NOAA’s recent one-month outlook. According to World Weather, “there is some potential for a warmer and drier bias to return late in the first week of August, and if these conditions were to persist for more than a several-day stretch, rapid declines in yield potentials would occur in the drier areas.”
90-day outlook: Along with late-summer weather, export demand, outside markets and economic sentiment may influence prices at various points. Crude oil futures fell nearly $3 this week and further declines could weigh on the soy complex, especially if recession fears escalate. By contrast, a continued pullback in the U.S. dollar from 20-year highs could provide some support for commodities. Recent export numbers have been trending bearish. While weekly USDA export sales reported Thursday snapped a three-week string of net old-crop sales reductions, there was a third straight negative adjustment to a previous week (independent of the reported sales for the current week).
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.
Advice: We advise wheat hedgers to hedge 15% of 2022-crop in short December SRW futures. Our fill was $7.83.
Price action: September SRW futures fell 47 1/4 cents to $7.59, down 17 3/4 cents from a week ago. September HRW futures fell 41 cents to $8.20 1/4, down 17 1/4 cents from last week. December spring wheat fell 38 1/2 cents to $8.84 1/2, down 35 1/4 cents from last week’s close.
5-day outlook: September SRW plummeting to the lowest levels in over five months on continued fund liquidation, pressured by an agreement between Russia, Ukraine, Turkey and the U.N that will allow for the safe passage of grain exports out of Black Sea ports. Although a deal is set to be signed today, many uncertainties lie ahead, causing continued global trader speculation. Insurance is one of the many hurdles that remains as underwriters will have to adjust policies as shipowner risks will increase as active conflict continues. While many details need to be addressed surrounding a deal, it could potentially free up approximately 18 million MT of grain that has been frozen since Russia invaded.
SRW harvest should wrap up soon, easing hedge pressure and possibly limiting further downside. Hard red winter wheat harvest is progressing quickly, estimated to be almost halfway complete, with USDA saying producers continue to report higher-than-expected quality and yields in drought areas, and as harvest moves north, above average yields and quality continue to be expected.
30-day outlook: Outside markets will continue to provide direction. The Federal Reserve will meet next week and is expected to raise its benchmark interest rate by at least 0.75% at the conclusion of its policy-setting meeting July 26-27. Direct impacts will likely include a stronger U.S. dollar, possibly casting a shadow on the future export business as U.S products will be at a premium.
90-day outlook: The wheat complex could be viewed as a buying opportunity as outside factors diminish. However, traders will continue to remain cautious of long positions as winter wheat harvest progresses, headlines indicating a possibility of Ukrainian grain re-entering the market and a stronger U.S. dollar persists. If, and to what extent, Black Sea shipments resume in addition to continued U.S. exports will be closely monitored in the coming months, as stockpiles of domestic supply could limit the need to secure winter wheat acres.
What to do: Hedge 15% of 2022-crop in short December SRW futures. Wait on a corrective rebound to increase cash sales.
Hedgers: NEW ADVICE -- Hedge 15% of 2022-crop in short December SRW futures. Our fill was $7.83. You should be 85% sold in the cash market on 2022-crop. You should be 30% forward-priced on expected 2023-crop for harvest delivery next year.
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.
Price action: December cotton fell 71 points to 90.89 cents per pound, a weekly gain of 218 points.
5-day outlook: Pessimism about the short-term economic outlook and diminished apparel demand in a recession weighed on cotton futures. Neither drought in the Southwest nor significant U.S. dollar weakness stemmed the bearish tide. Instead, traders seemed to focus upon late-week weakness in the equity and crude oil markets. Traders may react positively to Monday’s weekly USDA Crop Progress report if it indicates a substantial deterioration in Texas cotton conditions, whereas persistent modest declines are likely built into futures. Moreover, it might take some seriously bullish numbers on next Thursday’s USDA Export Sales report to trigger a sustained futures rebound.
30-day outlook: Persistently hot, dry conditions are probably “baked into” cotton futures, so it may take a severe drop in the condition ratings on forthcoming reports to power a price reversal. And while large export commitments will almost surely be carried over into the new crop year on August 1, large new-crop sales and/or strong shipments figures may be needed to spur a bullish move. Conversely, the market might rebound quickly if some data point pertinent to the economic outlook were to top expectations and indicate more optimistic views concerning economic prospects are warranted. Of particular interest will be the August USDA Supply & Demand report on August 12; we suspect USDA analysts will be forced to trim their U.S. cotton export forecast for 2021-22, which would likely boost old-crop carryout (and new-crop carry-in) and undercut prices.
90-day outlook: Future new-crop supplies (the 2022 domestic cotton crop) and demand (affected greatly by the economic outlook) will likely play major roles in the late summer-early autumn cotton price outlook. Thus, traders will continue watching crop reports and export news for clues as to the outlook. They’ll also be monitoring economic news, the other commodity markets and the value of the dollar for indications. Wild cards in the form of hurricanes may show up at any time during the next 90 days.
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.
