Crops Analysis | July 27, 2022
Price action: Corn futures ended 2 to 5 cents higher, with December up 2 1/4 cents to $6.03, the contract’s highest closing price since $6.10 3/4 on July 18.
Fundamental analysis: December corn rose a third consecutive day on spillover support from notable gains in soybeans, which rallied on concern a return of extreme heat to the Midwest next week will harm yield potential. August heat is less of a concern for the corn crop, which will have mostly completed pollination by the end of July. Still, grain traders are likely to maintain some weather premium for the near-term. Crude oil also provided an additional boost to the corn market as nearby futures are trading over $3.00 a barrel higher.
The Midwest will shift to a drier-biased pattern, accompanied by temperatures exceeding 90 degrees Fahrenheit, starting Friday through at least Aug. 10, World Weather Inc. said today. The expected conditions will lead to “steady declines in soil moisture that should induce rising levels of crops stress,” the forecaster said. “Stress to crops and declines in yield potentials should increase quickly in the west-central Corn Belt next week when temperatures warm with increasing stress likely to occur later in the week as the soil dries down again in the southwestern and south-central Corn Belt.”
Also today, the Energy Information Administration reported U.S. ethanol production fell 13,000 barrels per day (bpd) during the week ended July 22 to an average of 1.021 million bpd, still up 0.7% from the corresponding week last year. Ethanol stocks dropped 225,000 barrels to 23.328 million barrels.
Technical analysis: December futures’ technical posture has strengthened this week, with the new-crop contract closing above its 20-day moving average (currently $6.00), for the first time since June 17, but still leans bearish-to-neutral over the longer-term. This week’s strength may have bulls targeting the July 18 high at $6.23 3/4 as well as the high for the month at $6.58 1/2. Bears are likely targeting the daily chart gap between Monday’s high at $5.84 1/4 and Tuesday’s low at $5.89 1/2. Key support is seen at the six-month low of $5.61 3/4 posted July 22.
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.
Price action: Soybean futures finished sharply higher and not far off session highs. November soybeans firmed 26 1/4 cents to $14.10, the contract’s highest close since June 30. September soymeal rose $11.00 to $446.00. September soyoil rallied 106 points to 59.85 cents.
Fundamental analysis: Soybean futures posted a fourth straight day of strong gains amid support from weather forecasts and broad-based buying in soy product markets. While cooler temps and waves of rains are being seen across major production areas, traders are focused on next week’s outlook, which calls for a return of hot and mostly dry conditions. Weather models have been signaling there’s potential for two high-pressure ridges to join up over the central U.S. next week, which would block out most moisture and elevate temps for a large area. But the midday GFS (U.S.) model run removed some of that ridging and slightly increased rain chances for some areas. Traders will watch this progression closely the final two days of the week as they position ahead of the weekend.
The increased focus on weather for next week coincides with the flip of the calendar to August, the most critical development period for soybeans. Traders now likely have much of the hotter, drier conditions expected next week factored into prices and will begin to base their trading decisions on forecasts for the second week of August.
Technical analysis: The short-term technical posture has turned neutral, with bulls trying to swing momentum in their favor. For that to happen, November soybeans must clear the downtrend drawn off the June 10 and 17 highs, which intersects right around today’s high and will be near $14.12 3/4 on Thursday. That’s backed by the July 11 high at $14.38 1/2, which lines up closely with a 50% retracement of the June high to last week’s lows. Clearing those levels could trigger a runup to a 61.8% retracement near $14.71. Near-term support is Tuesday’s chart gap from $13.58 1/4 to $13.49 1/4. Filling that gap would give bears encouragement to challenge support in the $13.00 to $12.90 range.
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.
Price action: September SRW closed 13 1/2 cents lower at $7.90 1/4. September HRS futures closed down 15 1/4 cents at $8.61 3/4. December spring wheat ended 17 1/2 cents lower at $9.22.
Fundamental analysis: The wheat complex ended lower after failing to extend gains from the past two days. Spring wheat led the complex lower with first day findings in the Wheat Quality Council’s annual hard spring wheat and durum crop tour projecting above-average yields for North Dakota, citing ample soil moisture for an average yield just shy of 49 bu. This is the highest day-one figure recorded since 2015. Final yields for the wheat tour will be produced on Thursday.
Traders remain intently focused on Ukraine in anticipation of ports being re-opened for export business. Turkish Defence Minister Hulusi Akar disclosed that Istanbul would oversee the export of Ukrainian grain, with first shipments expected to depart from Black Sea ports within days. At the same time, however, news of Egypt, the world’s largest wheat importer, cancelling 240,000 T of Ukrainian wheat made headlines this afternoon. Reuters reports one cargo is stuck in Ukraine’s Chornomorsk Port and four others were yet to be loaded. It is said that Egypt purchased the wheat in December for delivery in February and March, which never occurred as shipments were blocked from the war.
Technical analysis: September SRW futures traded nearly a 37-cent range, nearing the descending 20 day moving average at the high. The low was seen at first support at $7.82. Second support remains at $7.60 1/4. First resistance at $8.15 3/4 was tested, however a close above it was out of reach. Second level of resistance is at $8.27 3/4.
September HRW futures traded a 36-cent range, making a low range close. A test of first support at $8.52 1/2 was barely missed as the observed low in today’s session was $8.53. Second support remains at $828. First resistance at $8.90 was all but tested, with the highest trade occurring at $8.89. Second resistance stands at $9.03. September spring wheat traded a 34-cent range, leaving first and second support at $9.11 1/2 and $8.83 1/2 untested. First and second resistance also remained unscathed at $9.54 3/4 and $9.70.
What to do: Get current with advised hedges. Wait on a corrective rebound to increase cash sales.
Hedgers: You have 15% of 2022-crop hedged in short December SRW futures at $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 futures closed up 59 points at 95.07 cents per pound, the contract’s highest closing price since July 8.
Fundamental analysis: Cotton futures extended Tuesday’s gains with support from rallying crude oil and other outside markets, as well as weakness in the U.S. dollar. U.S. stocks strengthened after the Federal Reserve announced it raised its benchmark funds rate another 75 basis points in an effort to rein in soaring inflation. The stock market’s reaction suggested confidence in the U.S. economic outlook as the Fed moves more aggressively to combat inflation. But the dollar remains near a 20-year high, which could dampen demand for dollar-denominated commodities like cotton. Tomorrow’s GDP report for the second quarter will be watched closely for any confirmation the U.S. has entered a recession.
World Weather highlights that the bulk of Texas will continue in a dry and warm to hot mode for much of the coming week to nearly ten days, which will likely continue to negatively impact the state’s cotton crop. Rain potential may evolve in Texas, while a high-pressure ridge attempts to move into the eastern Midwest in the August 5-10 timeframe, although confidence in an eastward shift in the ridge remains low, as well as the potential for rain. However, the forecaster expects August rainfall potential to improve for the Texas coast, South Texas and northeastern Mexico.
Technical analysis: Cotton futures continue higher for the third consecutive session, confirming a more neutral bias near-term, as a close above the 20-day moving average was upheld for the second day in a row. Traders will likely continue to eye the July 11 high at 96.69 cents as well as the monthly high at 99.00 cents. Support will stand at 91.55, with second support to be seen at 88.63 cents should profit taking occur in coming sessions.
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.
