Crops Analysis | July 7, 2023
Price action: December corn futures plunged 12 cents as back and forth trade continues to plague the market, settling at $4.94 1/2, although price was just 1/4 cent lower on the week.
5-day outlook: Corn futures gave up most of yesterday’s gains as bearish fundamentals continue to weigh on prices. Weakness in the face of the U.S. dollar index tumbling to the lowest level since June 22nd is a testament to how bearish the fundamental situation is at this juncture. This morning, the USDA reported export sales of 251,700 MT for the week ended June 29 for old crop, right in the middle of pre-report estimates. USDA also announced new crop sales of 418,000 MT for new crop, which was near the upper end of pre-report estimates. This morning, there was also a daily flash sale announcement of 180,000 MT of corn for delivery to Mexico, 45,000 MT for 2022-23 and 135,000 MT for the 2023-24 marketing year. While recent export numbers have not been as poor as those seen in late April and May, we believe the poor performance amid a record Brazilian harvest warrants a cut to the USDA export estimate next Wednesday. The market already seems to be pricing in a cut to yield next week as well, evidenced by an average estimate of 176.3 bushels/acre from a Bloomberg survey. This would be the first cut in yield under the new methodology (since 2013) because of poor conditions. Each cut that has taken place before August has been due to late planting (2013, 2019).
The technical posture remains bearish as well. This week appeared to build a “bear flag” on the daily bar chart, with today’s close testing the bottom end of that pattern. Any further weakness will signify a breakdown targeting $4.50. The recent weakness in price is likely to continue over the next week, barring any major shifts in the balance sheet released on Wednesday.
30-day outlook: Weather across the corn belt has been largely favorable as pollination kicks off. Temperatures are expected to remain mild over the next ten days and regular bouts of precipitation into July 15 will allow favorable crop development, says World Weather Inc. The first summer rally of the year is behind us and price has since made a lower low. The market is pricing in beneficial weather and the large jump in acres seen in last week’s report. It will likely take another weather scare to kickstart another rally, or the realization that spring dryness will have a larger effect on yield than previously anticipated. As it stands, weakness is likely to prevail over the coming month.
90-day outlook: Weakening demand will be of no help to bulls over the next quarter. Brazil continues to take a larger portion of the world export market as it remains a steep discount to U.S. corn. Corn-for-ethanol use remains below levels seen a year ago, despite EPA measures to ensure sales continue throughout the summer. Analysts expect balance sheets to expand nearly 700 million bushels over the course of the next year, according to a Bloomberg survey. This is despite stocks coming in far lower than expected in the June 30 Quarterly Stocks report. Planted acres are seen at the highest level since 2013 and the potential for a record yield still remains despite early season dryness. Barring any major shift in demand or a severely damaged crop beyond what is currently expected, weakness will likely prevail until harvest.
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: You should be 85% priced in the cash market on 2022-crop. You should be 50% forward priced for harvest delivery on expected 2023-crop with 25% reowned in December $7.00 calls short-dated to August (July 21 expiration). Our fill on the $7.00 calls was 12 cents.
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.
Price action: November soybeans fell 21 3/4 cents to $13.17 3/4 and lost 25 1/2 cents on the week. August meal closed $5.40 lower to $402.80 and is down $11.10 week-over-week. August soyoil fell 41 points but gained 87 points on the week.
5-day outlook: Soybeans extended lower for the third straight session after failing to sustain momentum above the late June highs at the beginning of the week. Traders will be tuned in to USDA’s July World Agriculture Supply and Demand Estimates, due out next Wednesday. Large acreage cuts from the June 30 Acreage Report will be figured into supply and will result in a sharp drop in 2023-24 ending stocks. Traders will closely monitor the data, including possible yield cuts, given historically low condition ratings to date, in addition to demand projections.
30-day outlook: Weather over the next month will prove especially crucial in determining the fate of the U.S. soybean crop. World Weather Inc. indicates the Midwest will continue to see mostly mild temperatures over the next ten days, accompanied by regular rounds of showers into July 15, providing favorable conditions for crop development. However, the forecaster indicates the rains are not likely to be heavy, with precip becoming infrequent and lighter from July 16-21, with many areas likely needing rains to prevent crop stress from quickly increasing.
90-day outlook: As the 2022-23 marketing year winds down, traders will continue to closely watch export sales. Currently, soybean export commitments are running just over 12% behind a year ago, with new-crop exports likely to continue the trend in the wake of significantly less acres and lackluster crop conditions. Earlier today, USDA reported weekly export sales of 187,800 MT for week ended June 29, which were down 17% form the previous week and 45% from the four-week average. Meanwhile, net sales of 592,800 MT were reported for 2023-24. Traders expected sales to range from 100,000 to 350,000 MT for 2022-23 and 0 to 400,000 MT for 2023-24.
What to do: Get current with advised sales/positions. Be prepared to advance sales on additional price strength.
Hedgers: You should be 80% priced in the cash market on 2022-crop. You should be 35% forward priced for harvest delivery on expected 2023-crop production with 25% reowned in November $14.00 call options short-dated to August (July 21 expiration). Our fill was 37 cents.
Cash-only marketers: You should be 80% sold on 2022-crop. You should be 25% forward sold for harvest delivery on expected 2023-crop production.
Price action: December SRW wheat futures fell 10 cents to $6.66 1/2 and for the week lost 2 3/4 cents. December HRW futures dropped 25 1/4 cents to $8.19 1/2 and on the week rose 19 1/4 cents. December HRS wheat fell 10 1/4 cents to $8.54 1/2, marking a 28-cent week-over-week loss.
5-day outlook: The winter wheat market bulls were disappointed that futures prices today could not rally amid a sharp drop in the U.S. dollar index. Solidly lower corn futures prices today once again helped to pull down the wheat markets. Look for wheat traders to continue to look to the corn futures market for directions. Crop condition and harvest progress updates in Monday afternoon’s weekly crop progress reports and Wednesday’s USDA monthly supply and demand report will be key data points for wheat traders next week.
30-day outlook: With winter wheat harvest continuing to push north this summer, traders will continue to closely monitor weather in the Midwest and Plains. World Weather Inc. today reported less frequent and less significant rain is expected to evolve next week across hard red winter wheat areas and temperatures will trend warmer. “The change may help prevent a serious wheat quality decline because of abundant rain this week, but there is still some risk of crop damage,” said the forecaster. In spring wheat country, World Weather said rain will occur in most areas at one time or another in the next seven days. However, net drying is expected in most of Montana and western South Dakota. Rain elsewhere in the region will be well timed and supportive of ongoing crop development.
90-day outlook: USDA today reported U.S. wheat export sales of 405,800 MT for 2023-24, which topped the pre-report range of 50,000 to 350,000 MT. The U.S. dollar index dropped sharply today. Any further weakness in the greenback would make U.S. wheat market competitive on the world trade markets. Meantime, U.S. spring wheat crop conditions declined in recent weeks. That’s been price-supportive, but seasonal pressure from the fall HRS and corn harvests is likely to limit the upside in spring wheat futures in the coming months.
What to do: Get current with advised sales.
Hedgers: You should be 50% sold in the cash market on 2023-crop production.
Cash-only marketers: You should be 50% sold on 2023-crop production.
Price action: December cotton rose 116 points to 81.04 cents, gaining 67 points on the week.
5-day outlook: December cotton futures pushed higher, with crude oil strength and a weaker U.S. dollar underpinning gains. In the near term, outside markets will continue to drive markets up until USDA releases fresh supply and demand estimates in its monthly WASDE report, set for release July 12. The report will provide updates to U.S. production, exports and ending stocks along with world production, consumption and ending stocks. Overall pre-report estimates indicate minimal cotton sector changes from June, which implies larger variances could spur notable market movement.
30-day outlook: Weather across key U.S. growing areas will continue to play a significant role in market direction as the growing season progresses. Thus far, periods of rain and hot, dry weather have proven extreme, in Texas in particular. World Weather Inc. notes Texas cotton areas still need significant rain after recent weeks of hot, dry weather. While temperatures will not be as hot as last week, a warmer-than-usual bias is expected along with little to no rain for the next ten days, which will prove to be stressful, especially for unirrigated cotton.
90-day outlook: U.S. export sales will continue to provide insight into the global economy and overall demand. As of late, cotton export sales have proven steady but are still trailing year-ago by over 11%. Earlier today, USDA reported net sales of 109,200 RB for the week ended June 29: those were down 13% from the previous week and 42% below the four-week average. Top purchasers for the week included China, Mexico and Vietnam. Net new crop sales of 130,400 RB were also reported for the week, of which China was a top buyer.
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.
