Drought in Argentina has cut their wheat production this year
David Reinbott
BENTON, MISSOURI
As we finish out 2022 and enter 2023, there are many factors that need to be watched for price direction and pricing opportunities. The ending stocks of the U.S. crops are tight based on historical values. Therefore, any bullish news either on the supply or demand side both in the U.S. or the world could result in some very explosive prices. However, concerns in the U.S. and the world about economic growth, inflation, and recession seems to be keeping the big funds from jumping in to buy commodities.
Corn
Corn exports and sales remain slow and the potential of a big corn crop in South America have all contributed to price weakness. From the March futures chart, if futures can close above $6.60 then a run to $6.70 to $6.75 is possible. A rally back to $6.70 or higher would be a good price target for corn sales still in the bins.
Soybeans.
Soybeans have benefited from strong exports. However, without a negative weather development to cut production in South America, soybean prices will also be under pressure just as corn. From the March futures chart, futures have rallied to $14.95. This would be a good price level to scale in some old crop sales.
Wheat.
With the big wheat crop coming out of Russia and U.S. wheat presently not being price competitive, wheat prices will continue to be under pressure. July wheat futures need to hold the $7.40 price level. July wheat futures have fallen $2.00 per bushel since early October. With the uncertainty in Ukraine and with our own U.S. winter wheat crop, you cannot rule out a potential 50% retracement back to $8.40. Therefore, if you have not made many new crop sales, scaling in a few sales about $8.00 would be a marketing strategy to consider.
Cotton
The uncertainty of world economic growth and especially in China has pressure cotton prices. The March cotton futures chart has found price support at 80 cents with price resistance at 87 cents. However, prices are in a down trend since mid-November. The next price support level is at 75 cents. It is important for a cotton producer to be in close contact with their cotton buyer on sales decisions.
Rice.
March rice futures need to hold price support at $17.00 with the next price resistance level at the price gap at $16.83 and then at $16.65. It is important for a rice producer to be in close contact with their rice buyer on sales decisions.
General Information.
South America is projected to have a big soybean crop and this will negatively impact our ability to be competitive in the export market. While Argentina’s corn and soybean crops will probably be scaled back in future USDA reports, Brazil could easily pick up the short fall if the weather stays favorable. This is a big if! The La Nina weather pattern is expected to fade after the first of the year and that can have a big impact on how the Brazilian soybean crop finishes out. Also, 2/3’s of Brazil’s corn crop is second plantings after soybeans and it could still be harmed by hot and dry weather.
U.S. corn exports need to pick up and soybean exports need to remain strong to help support prices. The water levels on the Mississippi River are still low but are improving. But additional rainfall will be needed for the rest of 2022 and 2023 for the river levels to be at a more normal level.
The drought in Argentina has cut their wheat production this year. Also, the quality of Australia’s big wheat crop is been downgraded due to excess rainfall. Ukraine’s winter wheat plantings are reported to be down by over 40% which should be bullish. However, with the large wheat crop in Russia and with the exports coming out of the Baltic region, it is difficult for U.S. wheat to be price competitive at this time.
The economic growth in the U.S. and the world and its impact on commodities needs to be monitored. Cotton prices are very sensitive to the economic growth in the world and especially in China. China’s on again and off again COVID restrictions need to be monitored.
The Federal Reserve and how they will combat inflation will need to be watched. The Federal Reserve raised its benchmark interest rate to the highest level in 15 years. They raised the borrowing rate ½ a percentage point taking it to a targeted range between 4.25 to 4.5%. It does look as if inflation is starting to moderate on a month-to-month basis. But it is still high and the Chairman has indicated he has no plans to slow down the interest rate increases any time soon.
Technical Analysis – December 19, 2022 for Corn, Soybeans, Wheat, Cotton and Rice.
Corn –
March 2023 futures rallied up to the down trend line and the price resistance level around $6.60. The next price resistance is $6.70 to $6.75. The 50 day and 200 day MAs are also converging at this price level. For prices to rally above $6.70, it will require some very bullish supply and/or demand news. The next price level is around $6.90 to $7.05. For now, prices are in a downtrend and rallies should be used to make old crop sales especially is prices rally back to $6.70 or higher.
Soybeans –
March 2023 soybean futures continued to move higher as it remains in the uptrend that began back in mid-October. Futures have reached a critical price level as it is challenging the $14.95 price resistance. To break above $14.95, it will require continued bullish exports and sales and weather problems in Argentina. Price support is at $14.60 and the 50 and 200 day MAs are at 14.40. If you need to make old crop sales, this is good price level to scale in these sales.
Soybean Oil
March 2023 Soybean Oil futures held support at $60.00 and have bounce back to around $63.00. The 50% retracement is around $66.00 and the 200 day MA is also at $66.00. The next price support level is around $56.00. Futures for the next several months may just trade between $60.00 and $66.00.
Wheat-
July 2023 wheat futures have so far held price support at $7.40. The next support level is at $7.00. Price resistance is at the down trend line at $7.80. The next price resistance is at $8.00. A 50% retracement from this price decline is at $8.30. With the large wheat crop in Russia and with the exports coming out of the Baltic region, it is difficult for wheat to be price competitive. At this time, I would not make any additional new crop sales.
Cotton-
March 2023 Cotton futures remain in a trading range between 80 and 87 cents. Below 80 cents, the next support level is at the price gap at 75 cents. For prices to move higher bullish fundamental news is needed. News on improving world economic growth and especially in China is needed.
Rice-
March 2023 Rice futures continue to trend lower and needs to hold price support at $17.00. The next price support levels are at the price gap at $16.90 and the October low at $16.65. Price resistance is at the 8 day EMA at $17.17 and the 50 day MA is at $17.58.
U.S. Dollar Index-
March 2023 Dollar futures continue to trend lower and is trying to hold price support at $103. Price resistance is at $106 and at $107. Futures have trended lower since establishing a high at $114 in late September. With such a large drop in prices, a rebound in prices is possible. A weaker dollar is generally positive for commodity prices and needs to be watched. ∆