Key Driver For New Crop Corn Prices Will Be The Weather
DAVID REINBOTT
BENTON, MISSOURI
As we enter into the month of June, the key driver for new crop corn prices will be the weather and the impact on yields. USDA in the May 12 report, cut the yield by 4.0 bushels to 177.0 bushels/acre from the trendline yield of 181.0 bu./ac. due to the slow planting progress. Ending stocks were projected at 1.36 billion bushels down from 1.44 billion in 2021.
On May 19, the National Weather Service updated their summer weather forecast. They are still forecasting above normal temperatures for most of the west and major corn and soybean growing regions in the mid- west and east. Most of the excessive heat will be west of the Mississippi River. The forecast for below normal precipitation is for the western growing regions. However, if you extend the forecast out to July – September, both the western and eastern corn and soybean growing regions are forecasted to have above normal temperatures and below normal precipitation. How much of a yield impact this will have is still uncertain? However, it should keep prices supported but with extreme upside potential if there is a 10 – 14 day period of hot and dry during pollination.
There is still uncertainty on the number of corn acres that will be planted. The high corn prices probably have bought a few more acres. Also, it may have kept some of the acres in North Dakota and Minnesota that would have gone to prevent plant to be planted.
Total use for the 2022 corn crop compared to the 2021 crop was cut 370 million bushels to 14.565 billion. Feed use was reduced 275 million bushels and exports reduced 100 million bushels. Corn for ethanol was left unchanged. The exports will depend upon the size of the corn crop out of South America and the demand from China. It looks as if the South American corn crop especially the second crop safrinha corn crop in Brazil will be coming in less than projected from a few weeks ago.
China has agreed to buy more corn from Brazil, however, that may open export markets for the U.S. to sell corn to other Countries that bought from Brazil. Corn for ethanol will depend upon this summer’s driving season. Overall, there is still some room for the use to go up in 2022-23.
Soybeans
In the May 12 USDA report, old crop soybean ending stocks were cut 25 million bushels to 235 million based on a 25 million bushel increase in exports. For the 2022 new crop, ending stocks were projected at 310 million bushels. However, the ending stock may be getting tighter.
Soybean crush continues to be strong along with exports. The 2021 ending stocks could be cut and additional 50 million bushels which would put the ending stocks below 200 million bushels and would result in the new crop ending stocks going below 300.
The number of acres of soybeans to be planted is still unknown. Double crop acres will probably go up. Some corn acres and spring wheat acres may be switched to soybeans. Weather will also have a big impact on yields and production. The May 19 National Weather Service update on summer weather is generally hotter and dryer especially west of the Mississippi River. However, if you extend the forecast out to July – September, both the western and eastern corn and soybean growing regions are forecasted to have above normal temperatures and below normal precipitation. A hotter and dryer second half of the growing season has the potential to have a negative impact on soybean yields and late planted corn yields. We will have to watch how the summer unfolds.
Wheat
The big news last week was Russia’s proposal to allow wheat to leave Ukraine ports. However, it requires that sanctions to be lifted which I do not see happening at this time.
Other ongoing news for wheat is the drought in the western growing regions in the U.S. and its impact on production. The wheat crop in India has been cut due to a drought and there is a report they will ban or restrict exports.
Cotton
Drought in Texas and the Southwest and the impact on the planted acres, abandonment of acres, and yield will drive price direction. The ending stocks are tight. The cotton charts are showing cotton prices pulling back after making new contract highs. Is this just a pullback in prices for the next leg higher or have prices put in a top? Weather will have a big impact on price direction.
Rice
Both the old cop and new crop prices continue to trend higher since the first of the year. However, prices have pulled back recently from new contract highs and need to take out these new highs to continue the trend higher.
Pricing opportunities
Because of all the unknows, it makes marketing the old crop and new crop very challenging. The historical seasonal price trend is for prices to peak as we enter the spring planting season (March – May).
Therefore, taking advantage of the good prices being offered by scaling in sales is still a wise choice. A farmer could also use a close below an important moving average or price support level to make some sales. For the new crop, scaling in a few sales is not a bad idea either but have price floors under the market if prices do turn lower.
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 – May 30, 2022 for Corn, Soybeans, Wheat, Cotton and Rice.
Corn –
July 2022 futures are in a down trending channel of lower highs and lower lows. Prices have fallen to an important support level at $7.60. If prices cannot hold this price level, the next support level is at $7.40. Prices closed below the 50 day MA which is at $7.71 on Thursday but rallied and close above the important moving average on Friday. Price resistance is at the 17 day EMA at $7.82 followed by $8.10, the high from April 29 at $8.25 and $8.44 the high set in August during the drought of 2012. How prices open Monday night will give an indication of the trade’s outlook on demand for this years' production. If you still have old crop corn, scaling in sales would not be a bad idea. Another strategy is to make sales if prices close below a major moving average or support level and especially if prices close below $7.60.
December 2022 futures are in a sideways trading range between $7.60 and $7.10. Price direction will be influenced by U.S. production from planted acres, yield, and summer weather. Seasonally prices will peak in the March – May time period to ensure enough acres are planted and then the focus will be on the weather and growing conditions. Monday night’s trade will be focused on anticipated planting progress and weather. Prices need to hold the $7.10 support with the next major support at $6.80. Price resistance is at $7.60, the high on May 16 at $7.66 and $8.49 from August 2012. For new crop sales, I would use a close below the $7.10 support level.
Soybeans –
July 2022 futures on Friday closed above the top of the price channel and made a new high at $17.44. The next price target is $17.95 from September 2012. Monday night will give an indication on the trade’s outlook on demand for old crop soybeans. Price support is at the uptrend line at $16.67 followed by $15.60. With the uncertainty of the supply of soybeans in the world and the U.S., prices should be well supported. USDA will need to increase exports in the next report. For old crop soybeans, scaling in sales or a close below $16.67 would be a good plan.
November 2022 soybean futures closed above the top of the price channel on Thursday and Friday. The high on Friday was $15.51. The next price targets are $15.55 from February 24 and $17.89 from September 2012. Price support is at the 34 day EMA and the 50 day MA at $15.00 followed by $14.40 at the bottom of the price channel.
Monday night’s price action will give an idea what the trade anticipates on planting progress, acres planted and weather.
Seasonally new crop prices will put in a spring high in May and trend lower with rallies based on any unfavorable weather. If would need to make new crop sales I would use a close below $15.00 or a close below $14.40.
Wheat-
July 2022 wheat futures rallied to $12.84 on the news of a smaller wheat crop in India and a possible export ban. Prices have pulled back and have found price support at $11.33. This is an important price level as several moving averages and the uptrend line are all converging at this price. If broken, the next price support would be at $10.42 followed by $9.82. Monday night’s trade will give an update on what the trade’s outlook for wheat production and demand.
Seasonally, winter wheat prices put in a high in early May and trend lower into harvest. Therefore, making some sales in the $12.84 to $11.33 price range may be a good idea.
Cotton-
July Cotton futures put in a bearish key reversal on May 5 and have been trending lower with lower highs and lower lows. Prices closed below the price support level at $1.44 and need to hold the support at the 50 day MA at $1.39. The next support levels would be at the support line at $1.35. The slow stochastics price momentum indicator is over sold which could signal a bounce in prices. Price resistance is at the contract high at $1.56 and the life time high is at $2.27 from March 2011. In the near term, if old crop sales need to be made, I would use a close below the 50 day MA at $1.39 or a rally back to $1.44.
December Cotton futures put in a new high of $1.34 last Monday, but trended lower the rest of the week and has found support at the 34 day EMA at $1.23. The $1.23 price level is important price support. If prices can hold this level, a rebound back it $1.30 is possible. If it does rally back to $1.30 and fails to go higher, then a head and shoulder top could be formed. This would be bearish on prices and would project a downward price target of $1.12. I am not saying it will happen, but it is something to be aware of. For new crop sales, I would recommend making some sales on a close below $1.23 or a rebound back to $1.30.
Rice-
July rice futures continue to trend higher for 2022. Every price retracement has found support at the 34 day EMA or the 50 day MA.
Presently the 34 day EMA is at $16.94 and the 50 day MA is at $16.71. The high is at $18.16 on May 16. From the weekly charts the next resistance level is at $20.57 from June 2020. There is some price resistance at $17.50 that needs to be cleared to continue the price trend higher. If you need to make old crop sales, I would use a close below the 34 day EMA at $16.94.
September rice futures were up on Friday and the next price target is the contract high of $18.20 from May 16. The next price target from the monthly chart is $18.25. There is price support at $16.83 and the 34 day EMA at $17.02.
As I outlined in the December Cotton chart, prices maybe forming a bearish candle stick price pattern that could set up for a significant price decline. If prices close below $16.83, the next price support levels is at the 50 day MA at $16.70. If you need to make new crop sales, I would use a close below the support line and up trend line at $16.83. ∆
DAVID REINBOTT: Agriculture Business Specialist, University of Missouri Extension