With South America Beginning To Plant Corn And Soybeans, The Weather Needs To Be Followed Closely
DAVID REINBOTT
BENTON, MISSOURI
On Monday September 12, USDA released their monthly supply and demand reports and updated the planted and harvested acres using FSA data.
The report had plenty of surprises for corn, soybeans and cotton. The biggest surprise was the 1.4 bushel per acre cut in the soybean yield from the August report. The yield was trimmed from 51.9 bu./ac. to 50.5 bu./ac. The trade was expecting a more modest cut of 0.4 bu./ acre. Planted and harvested acres were also cut more than expected for corn and soybeans and cotton acres actually went up. This resulted in tighter corn and soybean ending stocks even though USDA also trimmed back demand estimates for the marketing year.
As we move into the fall harvest, corn and soybean yields will need to be watched closely to determine if USDA will make another yield reduction in the October report. The hot and dry weather in many areas of the Country the past several weeks may trim some bushels off the yields. Also, will the demand for all the crops both in the U.S. and the world decline due to the slowdown in the world economic growth, higher prices due to inflation, higher interest rates, and government programs to fight inflation. In addition, the uncertainty and fear from the war in Ukraine and how it will impact world production, trade and demand. With South America beginning to plant corn and soybeans, the weather needs to be followed closely. Right now, we are in a third year of a La Nina weather pattern and Southern Brazil and Argentina are feeling its effect with dry weather and delayed plantings.
Corn
The USDA report estimated the corn yield at 172.5 bu./acre which was 2.9 bu./acre below the August estimate and equal to the trade guess.
The surprise for corn was in the planted and harvested acres. The planted acres were cut 1.2 million acres from the August estimate to 88.6 million. The harvested acres were cut 1.0 million acres to 80.8 million. The trade was expecting harvested acres to be cut less than 200,000 acres. This resulted in total production to be down 415 million bushels for last month with the trade expecting only a 144 million bushel reduction.
USDA made adjustments for demand for both the 2021 and 2022 crops. For 2021, corn crush for ethanol was cut 20 million bushels but exports were increased 25 million which resulted in a 5 million bushel total reduction in ending stocks to 1.525 billion bushels. For the 2022 crop, demand or use was cut 250 million bushels. Feed and exports were both cut 100 million bushels and crush for ethanol was cut 50 million bushels. The result was ending stocks were trimmed 170 million bushels to 1.219 billion bushels. The average farm price was increased 10 cents to $6.75.
World corn production for 2022-23 was down 7.0 mmt with most of the decline from the United States. Ukraine production was actually up 1.5 mmt and exports were up 0.5 mmt to 13.0 mmt. Compared to last year, Ukraine’s exports were 26.0 mmt for corn. China’s corn production was increased 3.0 mmt.
Going forward, we will need to see if USDA makes any further reductions in the yield and production. If they do make cuts in the production, how much of an adjustment will they make on the demand side of the balance sheet. As I have mentioned before, with all the economic uncertainty in the world, USDA may need to trim demand estimates in their balance sheets in the future. The past two years China has been very active in buying U.S. corn. However, they are indicating they will be buying less for this coming marketing year.
Part of the reason is that Brazil will have more corn to export this coming year due to a rebound in production. However, Europe had weather problems this past year and their crop production will be down. The continuous uncertainty of the production from Ukraine will have a big impact on U.S. corn exports.
December corn futures on Monday of the report closed up 14 cents.
However, for the rest of the week prices were down each day and finished the week down 19 cents off the close from Monday. Futures are still in an uptrend and need to hold the price uptrend at $6.70. If the trend line is broken the next support is at the 34 day EMA at $6.55 and then the 200 day MA at $6.40. Price resistance is at the high on Monday at $7.00.
Seasonally, prices rally into the USDA September report and then turn lower into the fall harvest and attempt to find a low in early to mid- October. If you need to make some harvest sales, this will be a good time to consider making them.
Soybeans
The biggest surprise from the report was the 1.4 bushel per acre cut in the soybean yield from the August report. The yield was trimmed from 51.9 bu./ac. to 50.5 bu./ac. The trade was expecting a more modest cut of 0.4 bu./acre. Pro Farmer back in August during their crop tour projected the soybean yield at 51.7 bu./acre. Another big surprise was the cut in soybean planted and harvested acres. Planted acres back in the August report was projected at 88.0 million acres and in this report the acres were projected at 87.5 million a 500,000 acre cut. The harvested acres were estimated at 86.6 million acres which is 600,000 less than August report and 688,000 acres less than the trade estimate. Total soybean production was cut 153 million bushels to 4.378 billion bushels.
In the 2021-22 balance sheet, exports were trimmed 15 million bushels and ending stocks were increased by the 15 million bushels to 240 million bushels. For the new crop 2022-23, demand or use was cut 93 million bushels. Crush, seed and industrial was cut 23 million and exports were cut 70 million bushels. The bottom line, ending stocks are projected at 200 million bushels down 45 million from last month.
World soybean ending stocks were cut 2.5 mmt from last month. Over 1.0 mmt of that came from the U.S. due to our smaller crop and a 1.0 mmt cut in the ending stocks in China due to a 1.0 mmt cut in soybean imports. This could be a result of slowing economic growth in China.
Soybean prices came under pressure two weeks ago when the Argentina government devaluated their currency to give an incentive to their farmers to sell their soybeans. Argentina farmers will hold soybeans in storage as a hedge against inflation. The soybean farmers took advantage of the incentive and that pressured our soybean prices. November soybean furfures on Monday of the report closed up 76 cents.
However, just like corn futures they were down every day for the rest of the week and finished the end of week down 31 cents off the close from Monday. Futures are in a trading in range between $14.80 and $13.80. Seasonally, prices rally into the USDA September report and then turn lower into the fall harvest and attempt to find a low in early to mid-October. If you need to make some harvest sales, this will be a good time to consider making them.
Wheat
There were no changes in the old crop or new crop supply and demand numbers on Monday. While demand has been lackluster, prices could be explosive depending upon how much of the Ukraine winter wheat acres get planted. Wheat prices got a boost on reports the Russian President Putin may back out of the Ukrainian export grain deal due to lack of wheat going to poorer countries. I am sure there is much more to this story than Putin’s concern for poor people.
World ending stocks were up 1.2 mmt for the 2022-23 crop. Production was up 4.3 mmt. Russia’s wheat production was up 3.0 mmt and ending stocks were increased 1.0 mmt. Ukraine’s wheat production was increased 1.0 mmt.
The July 2023 Wheat futures have been trading around the 200 day MA at $8.74 for the past week. Since mid-August, the futures have been in an uptrend with price support at $8.60. A price wedge is forming with price resistance at $8.90 and support at $8.60. A couple of closes above $8.90 would open the door for a rally to the next price resistance level at $9.50. However, a close below $8.90 would put the price support at $8.00 in play. Bullish news could push prices above $8.90. Prices above $9.00 would be a good price to start making some new crop sales.
Cotton
The cotton balance sheet for 2022 -23 had some very interesting updates and changes. I am assuming it is based on the updated acres from FSA. The planted acres from last month were increased 1.3 million to 13.79 million acres. The harvested acres were increased 750,000 acres to 7.88 million. Comparing the harvest acres from August to September, Texas acres were increased 300,000, Arkansas 140,000 acres, and Georgia’s harvested cotton acres were up 90,000. Most of the other cotton states were also up in harvested acres. Production was increased 1.26 million bales to 13.83 million and total supply was increased 1.51 million bales to 17.59 million. Exports were increased 600,000 bales and domestic use was left unchanged. The ending stocks were increased 0.89 million bales to 2.7 million bales. Cotton ending stocks are still tight and are down 1.0 million bales from last year. Also, ending stocks are the smallest since 2013. World cotton production was increase 1.44 million bales to 118.5 and ending stocks were increased 2.0 million to 84.8 million.
December cotton futures broke below the price support at $1.01 on Friday. The next price support levels are at 95 and 90 cents. If you need to make sales, I would use a rally back above $1.00 or buy a put option or an option strategy to set a price floor around 96 to 98 cents or so.
Rice
Both the old crop and new crop balance sheets had some positive updates made. The ending stocks for 2021-22 was decreased 1.8 million cwt to 39.7 million. Domestic use was increased 2.9 million while exports were cut 1.3 million. For 2022, planted and harvested acres were cut 120,000 and 130,000 acres respectively and the yield was trimmed 41 pounds to 7,586 pounds per acre. This resulted in total rice supply for 2022 to be down 11.6 million cwt. Demand was cut 6.0 million with domestic use cut 4.0 and exports cut 2.0 million. The ending stocks were reduced 5.6 million to 30.9 million cwt. This is the tightest ending stocks since 2019.
World rice production for 2022-23 was cut 4.0 mmt and ending stocks were down 5.0 mmt from August. India and China’s rice production were both down 2.0 mmt from the August report and the ending stocks were down almost by the same amount.
November rice futures have rallied back to the top of the trading channel at $18.10. The next price target would be $18.20. Price support is at $17.40 and then at $17.00. If you need to make sales, I would use a rally above $18.10 or a close below $17.40.
Pricing opportunities
For grain you will be selling at harvest and not storing, use the rallies as pricing opportunities. Keep a stop under the market to make sales if the weather forecasts change or some unexpected event happens.
Technically, I like to use trend lines to determine price support and resistance levels. From there, I use the moving averages for more intermediate to short term price support levels and pricing opportunities. For buys and sell signals, I use candlestick patterns and signals. I have found that closes below the 8 and 17 EMA are good signals to make sales when used in conjunction with the other technical indicators and make buys when prices close above 8 and 17 EMA.
Technical Analysis – September 19, 2022 for Corn, Soybeans, Wheat, Cotton and Rice.
Corn –
December 2022 futures are in an uptrend and need to hold price support at the uptrend line at $6.70. The next price support levels are at the 34 day EMA at $6.55 and then at the 200 day MA at $6.40 followed by the 50 day MA at $6.31. The seasonal trend is for prices to rally into the September USDA report and then pull back into early to mid- October. If you need to make sales either go ahead and make them or use a close below $6.55 or one of the price targets at $7.00 or $7.30 Soybeans – November 2022 soybean futures are in a trading range between $13.80 and $14.80. Next price resistance is at $15.20 and the next price support is at the price gap at $13.50 Just as in corn, prices seasonally rally into the USDA September report and then pull back into early to mid-October. If you need to make sales use closes below $13.80 or a run up to the price target at $14.80 to $15.20.
Wheat-
July 2023 wheat futures for the past week futures have been trading around the 200 day MA at $8.74. Since mid-August, the futures have been in an uptrend with price support at $8.60. A price wedge is forming with price resistance at $8.90 and support at $8.60. A couple of closes above $8.90 would open the door for a rally to the next price resistance level at $9.50. However, a close below $8.90 would put the price support at $8.00 in play. Bullish news could push prices above $8.90. Prices above $9.00 would be a good price to start making some new crop sales.
Cotton-
December 2022 Cotton futures broke below the $1.01 price support level and the 50 day MA. The next price support levels are at 95 and then 90 cents. The negative USDA report and the uncertain World Economic growth and the economic problems in China are putting pressure on cotton prices. Futures are below all the major moving averages. If you need to make sales, I would use a rally back above $1.00 or buy a put option a option strategy to set a price floor around 98 to 96 cents or so.
Rice-
November 2022 Rice futures traded back to the top of the trading range at $18.10. The slow stochastics price momentum indicator is over sold and could signal a pullback in prices at any time. The next price target is at $18.20. If you need to make sales, I would use a rally above $18.10 or a close below $17.40. ∆
DAVID REINBOTT: Agriculture Business Specialist, University of Missouri Extension