Crops Analysis | January 5, 2021
Price action: March corn futures fell 7 1/4 cents to $6.02 1/4.
Fundamental analysis: Corn futures were pressured by mild profit-taking and spillover from slumping wheat prices. Price weakness should remain limited due to ongoing dry weather in key South American crop regions. Private forecasters are lowering their corn-production estimates for South America. The “inflation trade” is also garnering increased interest from speculators, as illustrated by sharply rising U.S. Treasury bond yields.
U.S. ethanol production fell 11,000 barrels per day (bpd) to 1.048 bpd for the week ended Dec. 31, according to the Energy Information Administration. Production rose 12% from the corresponding week last year and rose 4.8% from pre-Covid levels two years ago. Ethanol stocks increased 638,000 barrels, to 21.36 million barrels.
Tomorrow’s weekly USDA export sales report is expected to show U.S. corn sales of 500,000 to 1.2 MMT in the 2021-22 marketing year.
Technical analysis: Corn futures bulls have a firm near-term technical advantage, with prices in a 3 1/2-month uptrend. The next downside target for bears is closing March futures below support at this week’s low of $5.84 3/4. The next upside price objective for bulls is closing March above solid resistance at the December high of $6.17 3/4. First resistance is seen at this week’s high of $6.11 1/4, then at $6.17 3/4. First support is at $6.00, then at Tuesday's low of $5.91 1/2.
What to do: Get current with advised 2021- and 2022-crop sales.
Hedgers: You should be 70% sold in the cash market on 2021-crop. You should also have 20% of expected 2022-crop forward-priced for harvest delivery.
Cash-only marketers: You should be 70% sold on 2021-crop. You should also have 20% of expected 2022-crop forward-priced for harvest delivery.
Soybeans
Price action: March soybeans rose 5 cents to $13.94 3/4, the contract’s highest closing price since $14.15 on June 11. March soybean meal fell $1.30 to $413.40 per ton, after rising earlier to a contract high at $416.50. March soybean oil gained 111 points to 59.44 cents per pound, a six-week high.
Fundamental analysis: Soybean futures rebounded from earlier losses to post a gain for a fourth consecutive session as dryness or other adverse conditions dampen South America’s crop outlook. Paraguay and southern Brazil remain among the top areas of concern, prompting at least two private analysts to cut forecasts this week.
Paraguay and most of southern Brazil are expected to see erratic shower activity through Jan. 10, leaving parts of the region with temporary improvements while other areas continue to dry down, though rain prospects have improved for the middle of next week, World Weather Inc. said. The western and southern halves of Rio Grande do Sul and western Santa Catarina in Brazil “will see little rain of significance through Monday and increases in crop stress should continue.”
Traders will scrutinize tomorrow’s USDA weekly export sales report for signs of improvement after late-December numbers proved disappointing. Net U.S. soybean sales for the week ended Dec. 30 are expected to range from 400,000 MT to 1.3 MMT, based on a Reuters survey of analysts. In last week’s report, net sales totaled 524,000 MT, a marketing-year low. Also today, USDA reported a sale of 132,000 MT of soybeans for delivery to unknown destinations during the 2022-23 marketing year. This is the first daily soybean sales announcement since Dec. 17.
Technical analysis: Soybeans’ technical posture continued to strengthen, with March futures topping out at $13.99 today. A push above the psychologically important $14.00 level may have bulls targeting the contract high of $14.45 1/2 posted June 7. However, March soybeans moved further into overbought territory with a reading of over 72 on the Relative Strength Index (RSI). Large speculators have built a large net-long position in soybeans over the past month, leaving the market vulnerable to a fund-driven sell-off. Support is seen at last week’s low of $13.34 1/2 and the 10-day moving average at $13.60.
What to do: Get current with advised 2021- and 2022-crop sales.
Hedgers: You should be 85% priced in the cash market on 2021-crop. You should also have 20% of expected 2022-crop forward-priced for harvest delivery.
Cash-only marketers: You should be 75% priced on 2021-crop. You should also have 20% of expected 2022-crop forward-priced for harvest delivery.
Price action: March SRW wheat fell 9 1/4 cents to $7.60 3/4. March HRW wheat fell 17 cents to $7.87, a three-week low. March spring wheat fell 22 1/4 cents to $9.48 1/4, the lowest closing price since mid-October.
Fundamental analysis: Wheat futures resumed the market’s downward bias after yesterday’s technically- and short covering-driven gains. Reports of poor crop conditions in the HRW regions of the U.S. Plains supported prices yesterday, but wheat remains burdened by sluggish exports and bearish chart patterns. Winter wheat futures’ tepid reaction what appeared to be bullish news is indicative of the market’s growing bearish tone.
U.S. wheat remains uncompetitive on world markets despite the recent price declines. Tomorrow’ weekly USDA export sales report is expected to show U.S. wheat sales of 150,000 to 400,000 MT in the 2021-22 marketing year.
World Weather reported that concerns over possible winterkill in parts of the central U.S. Plains remain, “but until spring any damage will only be speculated about. There is potential for a little threatening cold in Illinois, Indiana and northern Missouri Thursday and Friday due to limited snow cover and borderline damaging temperatures.” The next bout of cold will occur in the central Plains through Friday morning, with a little snowfall expected to precede the cold. “That should protect the crop from damage, but there is debate over how much snow will be present and some caution is required,” said World Weather.
HRW bulls' next upside price objective is closing March futures above solid resistance at $8.30. The bears' next downside objective is closing prices below solid support at the December low of $7.81. First resistance is seen at $8.00 and then at today’s high of $8.07 1/2. First support is seen at today's low of $7.82 3/4.
What to do: Get current with advised hedges. Wait on a price rebound to extend wheat sales.
Hedgers: You have hedges covering 20% of 2021-crop in short March SRW wheat futures at $7.57. You should also be 70% priced in the cash market on 2021-crop. You should have 20% of expected 2022-crop production forward-priced for harvest delivery.
Cash-only marketers: You should be 70% priced on 2021-crop. You should also have 20% of expected 2022-crop production forward-priced for harvest delivery.
Price action: March cotton futures fell 11 points to 116.28 cents per pound, after earlier rising to 117.66 cents.
Fundamental analysis: Cotton futures posted a decline for the first time in three sessions in sideways trade ahead of USDA’s weekly export sales report tomorrow. Mild profit-taking following yesterday’s rally, along with weakness in U.S. stocks, pressured the cotton market, though prices remain near historic highs amid generally bullish sentiment over export demand and the global economy.
Last week’s export numbers were somewhat disappointing, making tomorrow’s report key to near-term market direction. In last week’s report, USDA reported net U.S. cotton sales at 192,200 running bales (RB) for the week ended Dec. 23, down 21% from the previous week and down 40% from the average for the previous four weeks. By contrast, export shipments during the week climbed to 162,200 bales, up 24% from the previous week and up 40% from the four-week average. Rising shipments likely must be sustained for the industry to match USDA’s 2021-22 export forecast of 15.50 million bales.
Technical analysis: Bulls hold the solid near-term advantage despite today’s lackuster trade, with prices in a steep four-week price uptrend. The next upside price objective for bulls is closing March futures above solid resistance at the contract high of 118.50 cents, which was posted in November. The next downside objective for bears is closing prices below solid support at 110.00 cents.
What to do: Get current with advised 2021- and 2022-crop sales.
Hedgers: You should be 100% priced in the cash market on 2021-crop. You should also have 40% of expected 2022-crop production forward-sold for harvest delivery.
Cash-only marketers: You should be 90% priced on 2021-crop. You should also have 40% of expected 2022-crop production forward-sold for harvest delivery.
