Crops Analysis | June 21, 2023
Advice: We advise hedgers to claim profits on the December $5.70 call options short-dated to August (July 21 expiration) we purchased on 25% of expected 2023-crop for 17 cents. Buy December $7.00 calls short-dated to August (July 21 expiration) on 25% of expected production. Our exit on the $5.70 calls was 61 cents and our fill on the $7.00 calls was 12 cents.
Price action: July corn surged 27 1/4 cents to $6.71, finishing above the 200-day moving average and at the highest level since Jan. 17. December corn rallied 31 1/4 cents to $6.28 3/4, the highest close since Oct. 14.
Fundamental analysis: Corn futures extended solid gains for the fourth straight session following USDA’s lower-than-expected crop ratings, while persisting forecasts of dry weather throughout the Corn Belt underpinned prices. USDA reported the corn crop at 55% “good” to “excellent,” which was down from 61% last week, and below pre-report estimates of 58%. On the weighted Pro Farmer Crop Condition Index (CCI; 0 to 500-point scale, with 500 representing perfect), the corn crop sank 14.4 points to 346.5, with ratings dropping in 16 of the top 18 production states, with the largest declines in Illinois and Iowa. CCI ratings are now 29.7 points (7.9%) below year-ago.
World Weather Inc. reports drier areas of the Midwest have a good chance for scattered showers and thunderstorms during the late weekend and again in the second half of next week, though no drought busting rain is expected. However, enough moisture is expected to fall in “portions” of the dry region to allow for partial relief to the poor pollination conditions, with follow-up rains being imperative in higher volume and frequency.
Traders seemingly cast a blind eye to the Environmental Protection Agency’s finalized biofuel blending volumes for the next three years, which included just 15 billion gallons of conventional biofuels, such as corn-based ethanol in all three-years. The finalized volumes reflected a decline from the initial proposal.
Technical analysis: July corn gapped higher overnight and successfully extended above the 200-day moving average of $6.44 1/4 as well as resistance at $6.48 1/2, $6.53 1/2 and $6.60 1/4, with the next area of resistance standing at the Dec 30 high of $6.77 1/2, then at $6.95, with $7.00 serving as psychological resistance. Should profit-taking efforts ensue, support will lie at today’s failed resistance levels, with the 200-day moving average serving as solid support. However, a turn below the level will likely increase selling efforts, towards 10- and 100-day moving averages of $6.23 1/4 and $6.20 1/2, though $6.37 1/4 and $6.30 1/2 will serve up support ahead of reaching the area. A breach of the 10- and 100-day will find additional support at the 20- and 40-day moving averages of $6.23 1/4 and $5.96 1/2.
What to do: Get current with advised sales/positions. Be prepared to make additional sales on signs the weather rally has run out of steam.
Hedgers: NEW ADVICE -- Claim profits on the December $5.70 call options short-dated to August (July 21 expiration) we purchased on 25% of expected 2023-crop for 17 cents. Buy December $7.00 calls short-dated to August (July 21 expiration) on 25% of expected production. Our exit on the $5.70 calls was 61 cents and our fill on the $7.00 calls was 12 cents. You should be 85% priced in the cash market on 2022-crop. You should be 50% forward priced for harvest delivery on 2023-crop.
Cash-only marketers: You should be 85% sold on 2022-crop. You should be 35% forward priced for harvest delivery on expected 2023-crop production.
Advice: We advise hedgers to sell another 25% of expected 2023-crop production to get to 35% forward priced for harvest delivery and reown 25% in November $14.00 call options short-dated to August (July 21 expiration). Our fill was 37 cents. We also advise cash-only marketers to sell another 15% of expected 2023-crop production to get to 25% forward sold for harvest delivery.
Price action: November soybeans rose 34 1/4 cents to $13.77 and near the session high. Prices hit a three-month high. August soybean meal gained $27.20 to $437.30 and nearer the session high. Prices hit a two-month high. August bean oil closed down the 400-point limit at 54.73 cents.
Fundamental analysis: A bull-blown weather market is playing out in the soybean and corn futures markets, which propelled soybeans and meal today. Soybean oil dropped to limit down today on surprising news the U.S. government will implement a smaller biofuel mandate that initially proposed.
Tuesday afternoon’s USDA crop progress ratings produced a bullish surprise for soybeans. The agency dropped its U.S. soybean crop rating more than expected to 54% “good” to “excellent,” with the weighted Pro Farmer Crop Condition Index (CCI; 0 to 500-point scale, with 500 representing perfect) showing the soybean crop fell 10.6 points to 339.9, which is 26.1 points below year-ago.
Weather in the Corn Belt still leans bullish. However, remember that summertime weather patterns can change quickly and grains markets can “turn on a dime.” World Weather Inc. today reported that in the Midwest, dryness “will continue to be a problem in the next seven days. Any meaningful rainfall will be mostly limited to southeastern and far northwestern portions of the region.” However, some localized pockets of meaningful moisture will occur elsewhere. With temperatures being seasonably warm, crop stress will increase from Missouri through eastern Iowa, much of Illinois, and into Michigan and southern Wisconsin, said the forecaster. “A heavy, more generalized rain event is still needed” but such is not likely anytime soon, said World Weather.
The weekly USDA export sales report will be delayed one day, until Friday morning, due to the U.S. holiday on Monday.
Technical analysis: The soybean futures bulls have the firm overall near-term technical advantage. A steep three-week-old uptrend is in place on the daily bar chart and the bulls have momentum on their side. The next near-term upside technical objective for the soybean bulls is closing November prices above solid resistance at $14.00. The next downside price objective for the bears is closing prices below solid technical support at $13.00. First resistance is seen at today’s high of $13.76 and then at $13.90. First support is seen at $13.50 and then at today’s low of $13.41 1/4.
The meal bulls have gained the overall near-term technical advantage. A price downtrend on the daily bar chart has been soundly negated. The next upside price objective for the meal bulls is to produce a close in August futures above solid technical resistance at the April high of $456.00. The next downside price objective for the bears is closing prices below solid technical support at this week’s low of $408.20. First resistance comes in at today’s high of $438.90 and then at $445.00. First support is seen at $430.00 and then at $425.00.
The soybean oil futures bulls still have the overall near-term technical advantage but are fading badly. Prices are still in an uptrend on the daily bar chart, but it’s in jeopardy. The next upside price objective for the bean oil bulls is closing August prices above solid technical resistance at the June high of 59.39 cents. Bean oil bears' next downside technical price objective is closing prices below solid technical support at 50.00 cents. First resistance is seen at 56.00 cents and then at 57.00 cents. First support is seen at 54.00 cents and then at 53.00 cents.
What to do: Get current with advised sales/positions. Be prepared to advance sales on additional price strength.
Hedgers: NEW ADVICE -- Sell another 25% of expected 2023-crop production to get to 35% forward priced for harvest delivery. Reown 25% of 2023-crop in November $14.00 call options short-dated to August (July 21 expiration). Our fill was 37 cents. You should be 80% priced in the cash market on 2022-crop.
Cash-only marketers: NEW ADVICE -- Sell another 15% of expected 2023-crop production to get to 25% forward sold for harvest delivery. You should be 80% sold on 2022-crop.
Advice: We advise hedgers and cash-only marketers to take advantage of the contra-seasonal price rally by selling another 10% of 2023-crop to get to 50% priced.
Price action: July SRW futures rallied 38 3/4 cents and settled at $7.34 1/2, the highest close in four months. July HRW futures closed 37 3/4 cents higher at $8.73 3/4 and near the session high. July spring wheat rose 29 3/4 cents to $8.78 3/4.
Fundamental analysis: Wheat futures rallied alongside corn and soybeans today despite continued seasonal pressure from the winter wheat harvest. The U.S. dollar index posted losses of over 400 points as well, adding to the bullish fire in the grain markets. Recent weather concerns have expanded beyond the U.S., evidenced by SovEcon cutting its Russian wheat crop production forecast by 1.2 MMT, to 86.8 MMT, due to worsening crop conditions in the main spring wheat- growing regions. The influx of cheap wheat from last year’s record crop out of Russia helped the eight-month price slide from invasion highs. Worsening production prospects have helped turn the struggling market around, which encouraged us to recommend a sale of 10% of expected 2023 production.
Weather in HRW acres continues to be wet which has delayed winter wheat harvest, but as temperatures are rising moisture is preventing the soil from becoming overly dry. Rain is expected until the weekend and net drying is expected from Saturday until Tuesday, World Weather Inc says. Meanwhile, the northern Plains are expected to receive significant moisture, a blessing for the eastern Dakotas and western Minnesota where topsoil moisture has become very short. Thunderstorms and heavy rain are expected to occur in the region until next Tuesday, the forecaster says.
Technical analysis: July SRW futures have rallied a dollar in the last four days as gains have turned explosive after breaking an eight-month downtrend late last week. Price rocketed to resistance at the 200-day moving average at $7.32 which capped nearly all gains today. This will remain a key level heading into the latter half of the week and conditions have quickly become overbought. A continued rally faces little resistance until $7.55, then $7.95. If bears regain control, support can be expected at today’s low which coincides with $7.00 psychological support, backed by the 100-day moving average at $6.84.
July HRW futures have shared with SRW strength and are quickly approaching the upper end of the range that has capped nearly all price action in the last seven months. Significant resistance can be expected ranging from $8.80 to $8.85. There were only three closes above this level since November that occurred in mid-May, the failed breakout led to a $1.20 selloff in the next nine days. As harvest is underway, it will be difficult to overcome seasonal bearishness, but a daily close above this level would open the door to test the May high at $9.18 3/4. If bears turn recent strength around, support can be expected at today’s low of $8.39 1/2, backed by $8.25.
What to do: Get current with advised sales.
Hedgers: NEW ADVICE – Sell another 10% of 2023-crop to get to 50% priced in the cash market.
Cash-only marketers: NEW ADVICE – Sell another 10% of 2023-crop to get to 50% priced.
Price action: December cotton fell 18 points to 80.52 cents and near mid-range.
Fundamental analysis: Choppy and sideways trading continues in the cotton futures market. However, bulls should be worried their market could not advance today in the face of bullish outside market forces that included a lower U.S. dollar index, higher crude oil prices and big rallies in the grain futures markets.
World Weather Inc. today reported too much rain may have negatively impacted a few cotton areas in the southeastern United States recently and additional rain is expected over the next couple of days and then a short-term break will occur. More wet weather in the southeastern states is expected in the first week of July. West Texas may get a few showers later this week into next week and the Delta will see a good mix of weather. Southwestern counties of West Texas are likely to become too dry very quickly because of no rain and persistent hot weather. “Hot temperatures and no rain in much of Texas over the next two weeks will deplete soil moisture and raise concern over crop development,” said the forecaster.
Texas reported its cotton-planting progress at 84% complete as of Sunday. For week 24 of the USDA year (which is June 13 to 20 this year) this is the lowest cotton-planting progress since 1986 (74%) and 1987 (79%).
The weekly USDA export sales report will be delayed one day, until Friday morning, due to the U.S. holiday on Monday.
Technical analysis: Cotton bears have the slight overall near-term technical advantage. The next upside price objective for the cotton bulls is to produce a close in December futures above technical resistance at the June high of 82.49 cents. The next downside price objective for the cotton bears is to close prices below solid technical support at the March low of 77.56 cents. First resistance is seen at this week’s high of 80.40 cents and then at 81.00 cents. First support is seen at this week’s low of 79.58 cents and then at the June low of 79.05 cents.
What to do: Get current with advised sales. Be prepared to advance sales on a test of the winter highs.
Hedgers: You should be 100% priced on 2022-crop in the cash market. You should be 50% forward-priced on 2023-crop for harvest delivery.
Cash-only marketers: You should be 100% priced on 2022-crop. You should be 50% forward-priced on 2023-crop for harvest delivery.
