Crops Analysis | December 28, 2022
Corn
Price action: March corn rose 8 cents to $6.82 3/4, the contract’s highest close since $6.86 3/4 on Nov. 4.
Fundamental analysis: Corn rose a third straight session and posted a seven-week high behind spillover strength from soybeans and wheat and concern extended dryness in Argentina will damage crops. Global supply concerns lingered in the background following reports ship insurers said they are cancelling war risk coverage across Russia, Ukraine and Belarus. So-called protection and indemnity (P&I) clubs American, North, UK and West are no longer able to offer war risk cover for liabilities in the region from Jan. 1, according to reports. Ships typically have P&I insurance, which covers third party liability claims including environmental damage and injury. Optimism over improved growth in China after the country east Covid restrictions also supported grain prices.
Traders also continued to monitor South American weather and crop development, with Argentina in particular focus. Argentina’s government said 74% of the country's 2021-22 corn crop, which totaled 59 MMT, had been sold to date, behind the 76.8% sold in the same period during 2020-21 cycle. Planting of the 2022-23 crop began in September but has been hindered by dry conditions. While Argentina weather is price-supportive, corn futures likely will require support from corn and soybeans and well as outside markets, such as crude oil, to sustain the recent rally, because exports remain weak.
Technical analysis: March corn traded a 10 3/4-cent range, breaching resistance at $6.77 3/4 and marking the session high of $6.82 3/4, just above the next level of resistance of $6.81. A move higher would find bulls encountering additional resistance at $6.86 1/4 and $6.91, with $7.00 serving as psychological resistance. A turn lower, however, would find support first at former resistance at $6.81 and $6.77 3/4, then at the 100-day moving average of $6.70 and the 40-day moving average near $6.63 1/2.
What to do: Get current with advised sales. Wait to make additional 2022-crop sales.
Hedgers: You should have 50% of 2022-crop sold in the cash market.
Cash-only marketers: You should have 50% of 2022-crop sold.
Fundamental analysis: Soybean futures extended a post-holiday rally to six-month highs amid a rally in soymeal, concern dry weather in Argentina will curb production prospects and easing Covid restrictions in China will boost the country’s commodity demand. In Argentina, one round of organized rain is expected during the next 10 days to two weeks, which “is not likely to be great enough to prevent overall increases in crop stress and declines in yield potential,” World Weather said today. “Crop conditions should deteriorate before this weekend’s rain and should decline again when the moisture is lost to evaporation next week.”
Brazil retains prospects for a record crop, with regular rounds of rain and favorable conditions for crop development expected through the next two weeks. Paraguay, along with Brazil’s Rio Grande do Sul, will see another round of timely rain that may prevent significant increases in crop stress, but greater rain will be needed soon, World Weather said. While Argentina’s dryness remains price supportive, Brazil is faring better and is poised to produce a crop three times as large as its southern neighbor. That’s limiting the bullish impact of dryness concerns. Soybean futures’ strength this week suggests traders believe longer-term demand fundamentals will continue, and perhaps fresh export business is coming.
Technical analysis: Soybean futures’ technical posture turned increasingly bullish as the March contract extended a breakout above the past month’s trading range and closed above $15.00 for the first time since mid-June. The market’s uptrend has persisted nearly three months and gained momentum with today’s strong close. A push above initial resistance at Tuesday’s high of $15.22 3/4 could prompt bulls to target $15.50 and the contract high of $15.72 1/4, posted June 9. However, prices are nearing overbought conditions, which could prompt some profit-taking and corrective selling from large speculators, who have been building bullish bets in the soybean market since late November. Initial support in March soybeans comes in at Tuesday’s low of $14.85, the 10-day moving average of $14.83 1/4 and the 20-day moving average at $14.75.
What to do: Get current with advised cash sales. Wait to make additional sales.
Hedgers: You should be 60% sold in the cash market on 2022-crop production.
Cash-only marketers: You should be 60% sold on 2022-crop production.
Price action: March SRW wheat rose 11 cents to $7.85 1/2, the contract’s highest close since Nov. 30. March HRW wheat rose 3 cents to $8.82 1/4, a four-week closing high. March spring wheat fell 1/4 cent to $9.34.
Fundamental analysis: Winter wheat futures extended a rally to four-week highs amid signs of improvement in global demand and concern over crop damage in the U.S. Plains from last week’s extreme cold. The HRW crop went into dormancy under very poor conditions due to extended drought, and recent weather raises further pessimism over production prospects. In primary HRW states, precipitation over the week ahead will be limited mainly to northwestern and far eastern areas, World Weather said. “Some increase in topsoil moisture is likely in these two parts of the region as a result; however, very short soil moisture will continue in a majority of the region,” the forecaster said. Global supply concerns also supported wheat futures following reports ship insurers plan to cancel war risk coverage on Black Sea shipments.
Extended rallies in wheat futures will likely continue to meet resistance from poor U.S. exports and strong crops from other top producers. Russia-focused consultancy Sovecon raised its forecast for Russia's 2022-23 wheat crop to 101.2 MMT from 100.9 MMT previously. Egypt's General Authority for Supply Commodities contracted for a quantity of 200,000 MT of Russian wheat. The tender comes within the framework of the Food Security and Resilience Support Program funded by the World Bank.
Technical analysis: Winter wheat futures retain a bullish near-term bias with March contracts extending three-week uptrends and trade conviction growing the market established a near-term bottom early this month. SRW bulls' upside objective include closing March futures above the 40-day moving average at $7.96 1/4, the $8.00 level and the 50-day moving average at $8.09 3/4. Initial support comes in at the 10- and 20-day moving averages at $7.62 1/2 and $7.58 1/4, respectively.
What to do: Wait on an extended price rally to increase cash sales.
Hedgers: 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: March cotton fell 98 points to 83.26 cents, the contract’s lowest close since Dec. 16.
Fundamental analysis: Cotton fell near a two-week low as bullish momentum from last week’s gains faded amid weakness in crude oil and U.S. equities and strength in the U.S. dollar. Cotton traders continued to monitor China, where easing Covid restrictions have boosted optimism over the country’s commodity demand but also raised concern over rising infection rates. Soft exports continued to weigh on cotton futures. Friday’s USDA weekly export sales numbers will be watched for an signs of a pickup in demand.
Technical analysis: Cotton bulls and bears are on a level near-term technical playing field amid the recent choppy and sideways trading. The next upside objective for bulls is to close March futures above resistance at the November high of 89.92 cents. The next downside objective for bears is to close prices below solid support at the December low of 78.80 cents. First resistance is seen at 84.00 cents and then at 85.00 cents. First support is seen at 82.00 cents and then at 81.00 cents.
What to do: Wait on an extended corrective rebound to get current with advised 2022-crop sales.
Hedgers: You should be 70% sold in the cash market on 2022-crop production.
