Crops Analysis | May 27, 2021
Price action: July corn surged the 40-cent daily limit to $6.64 1/2 and December allied 34 1/4 cents to close at $5.55.
Fundamental analysis: Corn led a sharp rally across the grain and soy complex, driven in part by strong export demand, rumors of new Chinese buying and drier midday forecasts for the western Corn Belt. Cash Gulf basis bids remained firm, underscoring the tight supply situation. After the washout earlier this week, the rally ran into little fresh selling today, allowing prices to soar the daily trading limit.
USDA reported net corn sales for the week ended May 20 rose to 555,900 MT for the 2020-21 marketing year, double the level from last week. But the surprise was China bought 168,000 MT, including 66,000 MT switch from prior sales to unknown destinations. That buying eased early week fears that China is cancelling or rolling sales. For 2021-22, net sales of 5.69 MMT were almost entirely the result of China purchases. USDA’s daily export report announced 152,400 MT of new-crop sales to unknown destinations. Traders will be watching for any new daily sales announcements in the days ahead following talk of new Chinese business this week. China needs corn and import margins are profitable.
The market had been pressured this week by expectations for a high initial U.S. corn crop rating. Weekly crop progress reports will be delayed until Tuesday with the markets closed Monday in observance of Memorial Day. The prior five-year average initial crop rating is 69% in “good” and “excellent” condition. That will be the benchmark next week. Price direction to start next week will be based the updated weather forecasts and the amounts and coverages from this week’s storms.
South America weather is not expected to offer any changes to Brazil’s Safrinha corn, which is still being stressed by poor soil moisture and warm temperatures in Mato Grosso, Goias and southwestern Minas Gerais. Crops farther to the south in Brazil have benefited from recent rain. The crop will be smaller than last year, opening potential new demand for U.S. corn exports.
Technical analysis: July corn’s surge has erased this week’s losses. A close above last week’s settlement at $6.59 1/2 would confirm a selling exhaustion this week. However, rallies may struggle with several layers of overhead resistance between $6.70 to $7.00.
What to do: Get current with advised 2020- and 2021-crop sales.
Hedgers: You should be 90% sold in the cash market on 2020-crop. You should also have 30% of expected 2021-crop forward-priced for harvest delivery.
Cash-only marketers: You should be 90% sold on 2020-crop. You should also have 30% of expected 2021-crop forward-priced for harvest delivery.
Price action: Soybean futures ended sharply higher, with July up 33 1/2 cents at $15.37 a bushel and November soybeans up 31 1/4 cents to $13.78 1/4. July soymeal rose $6.50 to $393.30 per ton and July soyoil up 113 points at 66.81 cents.
Fundamental analysis: The soy complex joined a rally across the grain markets driven by a technical recovery from sharp declines earlier this week. Volatility remains high as the market is amidst competing bullish and bearish forces, with Midwest crops off to a quick start against an outlook for supplies to remain tight through the 2021-22 marketing year.
Weekly export sales data for soybeans were generally in line with trade estimates. Old-crop soybean sales were light at 55,900 MT, which isn’t surprising since Brazil is dominating the global export market for now. New-crop sales were just 248,300 MT, at the low end of traders estimates for 225,000 to 600,000 MT. Some traders may have been disappointed to see no new-crop sales to China, and it will be critical to have Chinese buying for October to January delivery materialize to put a stronger floor under prices.
Given the pace of planting and the early emergence, it’s hard to make the argument for below-trend yields. In addition, market bears are looking for higher acres than the March intentions when USDA updates at the end of June. There will be support on weakness as we still need to hold a risk premium, but rallies will be capped until new-crop conditions are threatened.
Technical analysis: July soybeans are poised to close higher for the week – above last Friday’s close of $15.26 1/4 – and break a two-week losing streak, which would shore up the technical picture to some degree. Near-term support is at Wednesday’s low of $14.89 1/4. A close above the 10-day moving average at $15.42 would give an early indication of a short-term low.
What to do: Make sure you are caught up with advised sales.
Hedgers: You should be 90% priced in the cash market on 2020 crop. You should also have 30% of expected 2021-crop forward-priced for harvest delivery.
Cash-only marketers: You should be 90% sold on 2020 crop. You should also have 30% of expected 2021-crop forward-priced for harvest delivery.
Wheat
Price action: July SRW wheat closed up 27 3/4 cents at $6.76 1/4 today. July HRW wheat closed up 27 1/2 cents today at $6.26 1/4. Prices closed near the session highs today on short covering after hitting a six-week lows on Wednesday. July spring wheat jumped 36 1/2 cents to $7.17 1/4.
Fundamental analysis: The wheat markets today saw support from sharply higher to limit-up gains in corn futures, solid gains in soybeans and from the lowest initial USDA spring wheat condition rating since 1988. Rain and snow in the Northern Plains may be too light to provide much improvement this week. Canada wheat regions will also need follow-up rains amid ongoing drought conditions. Key for the wheat markets will be Friday’s price action. If good follow-through price strength is seen Friday, then that suggests price action this week put in near-term market bottoms.
Weekly USDA export sales data for wheat were generally in line with trade estimates. Old-crop wheat sales were a light 29,500 MT as the marketing year comes to a close. New crop sales were on the lighter side of trade estimates at 373,800 MT. There are some signs the recent price break is attracting overseas buyers. Egypt bought Romanian wheat earlier this week and Saudi Arabia announced a tender for 800,000 MT overnight.
The European Commission on Thursday increased its forecast of the usable production of common wheat in the European Union's 27 member countries to 126.2 MMT from 124.8 MMT estimated last month. That’s up 7.7% from a year ago. The Commission kept unchanged its outlook for EU exports of common wheat, or soft wheat at 30 MMT, compared with an expected 27 MMT in the season that ends in June.
Technical analysis: Winter wheat bears still have the slight overall near-term technical advantage. However, more solid gains on Friday and bullish weekly high closes would then suggest the wheat markets this week put in near-term bottoms. SRW bulls' next upside price objective is closing July prices above solid technical resistance at $7.00. The bears' next downside breakout objective is closing prices below solid technical support at this week’s low of $6.39 1/2. First resistance is seen at today’s high of $6.79 1/2 and then at $6.90. First support is seen at $6.60 and then at today’s low of $6.48. The HRW bulls’ next upside price objective is closing July prices above solid technical resistance at the February high of $6.67. The bears' next downside objective is closing prices below solid technical support at this week’s low of $5.88. First resistance is seen at today’s high of $6.29 1/2 and then at $6.40. First support is seen at $6.15 and then at $6.00.
What to do: Make sure you are current with advised sales. Spring wheat producers should adjust sales levels based on your expected production levels based on your moisture situation.
Hedgers: You should be 100% sold on 2020-crop. You should also have 60% of expected 2021-crop sold for harvest delivery.
Cash-only marketers: You should be 100% sold on 2020-crop. You should also have 60% of expected 2021-crop sold for harvest delivery.
Cotton
Price action: July cotton futures closed up 17 points at 82.61 cents today. December futures gained 23 points at 83.46 cents.
Fundamental analysis: Today’s meager gains in the cotton futures market are a bit worrisome for the bulls, as the grain futures markets today posted strong gains.
USDA today in its weekly export sales report showed U.S. cotton net sales of 171,200 running bales (RB) for 2020/2021 were up 59 percent from the previous week and up noticeably from the prior 4-week average. Increases were primarily for China (42,800 RB), Pakistan (39,500 RB) and Vietnam (21,900 RB). For the 2021/2022 marketing year, net sales of 92,400 RB. Exports of 323,500 RB were down 6 percent from the previous week and 9 percent from the prior 4-week average. Exports were primarily to Vietnam (83,300 RB), China (57,900 RB) and Turkey (43,800 RB).
More rain in Texas crop areas over the coming days will maintain some favorable planting and early development conditions. However, more rain is needed in the southwestern dryland production areas. Drying in the southeastern U.S. this week is slowing crop development but supporting aggressive fieldwork. U.S. Delta weather will remain favorably mixed over the next couple of weeks. India’s early cotton benefited from last week’s rain. Xinjiang, China weather has improved and will stay more favorable. Northeastern China cotton areas have experienced some very cold weather at times this season with periods of rain which slowed development.
Technical analysis: The cotton bears have the overall near-term technical advantage. Prices have been trending generally lower for four weeks. The recent pause is not bullish. The next upside price objective for the cotton bulls is to produce a close in July futures above solid technical resistance at 87.50 cents. The next downside price objective for the cotton bears is to close prices below solid technical support at the March low of 78.15 cents. First resistance is seen at this week’s high of 83.53 cents and then at last week’s high of 84.30 cents. First support is seen at the May low of 81.75 cents and then at 81.00 cents.
What to do: Get current with advised 2020 and 2021 crop sales; be ready to advance new-crop sales.
Hedgers: You should be 90% sold in the cash market on 2020-crop. You should have 40% of expected 2021-crop forward-priced for harvest delivery.
Cash-only marketers: You should be 90% sold on 2020-crop. You should have 40% of expected 2021-crop forward-priced for harvest delivery.
