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May 15, 2023, Commentary.
Last Friday on May 12th, USDA released their monthly World Agriculture Supply and Demand Estimates (WASDE) report. It is a highly anticipated report because it is USDA’s first official estimate of the new crop supply and demand. For corn, soybeans, and rice the report was bearish because U.S. ending stocks came in greater than the trade estimated. USDA also projected and increase in the new crop world corn and soybean ending stocks. Brazil’s corn crop was increased 5.0 mmt and the soybean crop was increased 1.0 mmt. USDA made no changes to the soybean or corn crops for Argentina. However, many private estimates have Argentina’s corn and soybean crops significantly smaller than the USDA‘s estimate.
For wheat the report was neutral to bullish as USDA reduced the hard red winter crop due to the drought in Kansas and Oklahoma. For cotton the ending stocks for the old crop and new crop were smaller than many were projecting.
With the reports behind us the markets will be focusing on weather. While every year has its own challenges in getting the crop planted, in general plantings should go in without any major problems. USDA used the historical trend line yields which means we will have record or near record production. This follows the El Nino weather pattern that is being forecasted. An El Nino weather pattern is generally associated with good growing conditions in the summer and trendline yields in the U.S.
Corn
USDA increased the ending stocks for the 2022-23 old crop by 75 million bushels to 1.417 billion bushels. The increase was all from a 75 million bushel decrease in exports. Corn exports have been slow due to the projection of a big Brazilian corn crop and slow imports of corn from China.
The ending stocks for the new crop is estimated at 2.22 billion bushels. This is the largest since the 2018-19 marketing year. USDA is estimating total use to increase 755 million bushels for this crop year. That is a big increase.
While USDA is projecting a record Brazilian corn crop at 130 MMT. Their corn crop is entering the dry season and that means yields could be affected negatively. Also, it is not uncommon for their corn to be frosted on in June. Weather is Brazil needs to be watched. Also, Argentina will probably have their corn production cut in future reports.
Soybeans
The ending stocks for the old crop soybeans were increased 5 million bushels to 215 million bushels. This is based on a 5 million bushel increase in imports. Ending stocks for 2023-23 were projected at 335 million bushels. The trade was looking for a number around 290 million bushels. With the big soybean crop in Brazil, it will pressure soybean prices and exports. USDA is estimating use to increase 56 million bushels over last year.
Wheat
Wheat received the most attention from the report. The new crop ending stocks are projected at 556 million bushels. This is the smallest since 2007-08. The crop could get smaller as we find out more about the hard red winter crop. World ending stocks are also expected to see a decrease for the coming year.
Cotton
The cotton ending stocks for the old crop 2022-23 marketing year was cut 600,000 bales from 4.1 million to 3.5 million bales. Production was trimmed 200,000 bales due to a reduction in the harvested acres and exports were increased 400,000 bales. For the new crop, the ending stocks are expected to decrease 200,000 bales to 3.3 million. Planted acres are projected to be down 2.5 million and harvested acres are expected to be up 1.4 million from last year.
Rice
For old crop rice, the imports were decreased 500,000 cwt and this resulted in ending stocks being reduced by the same amount to 27.6 million cwt. New crop ending stocks are projected at 31.3 million cwt. This is based on a 360,000 acre increase in planted acres and a 204-pound increase in the yield. Total supply will be up 19.7 million cwt and use is projected to be up 16.0 million.
Summary
For the next 2 – 3 months, the markets will be focused on weather. Brazil needs moisture to finish off their second crop corn and if they do, they will be a big competitor in the export market. U.S. Corn yields have been below trend line the past 4 – 5 years so we are due for a record yield. Going into the second half of 2023 and into 2024 the focus will be on the U.S. and world economies and its impact on demand and use. If the economies rebound that will be friendly for commodity prices. But if economies struggle and especially in China that will not be bullish for prices. Also, will need to watch to see if Ukraine can get their crops planted and how does their conflict with Russia settle out.
Technical Analysis – May 15, 2023 for Corn, Soybeans, Wheat, Cotton and Rice.
Corn –
July 2023 futures needs to hold the $5.80 price support level. This is a 50% retracement from the November 2020 low of $4.00 to the May 2022 high of $7.60. The next price support level is the 62% retracement level at $5.37. Price resistance is at the 50-day MA at $6.13 followed by the down trend line at $6.30 and the support and resistance level at $6.40. Futures are due for a bounce after the negative USDA report on May 12. We need bullish news of less supply from adverse weather or better demand from China. If you have still have old crop corn in storage, consider making sales in the $6.10 to $6.40 price range.
December 2023 futures have been in a down trend since October. Futures put in a low of $5.03 on Monday but finished higher for the day. Monday’s trade was a potential bullish reversal. In addition, the slow stochastics price momentum indicator is over sold at under 20, and many times it indicates a change in price direction. The 50% retracement of the price move from 2020 to 2022 is $5.25. and the 62% retracement price is $4.89. Futures need to close above the 8 EMA at $5.20 to confirm a possible turn around in prices. The first major price resistance is at the old price support at $5.50 followed by the down trend line at $5.75. For new crop sales that you need to make at this time, I would recommend the $5.50 to $5.75 price range.
Soybeans –
July 2023 soybean futures have been in a down trend since March but may have found some price support in the $14.00 to $13.90 price range. The next major price support level is at $12.88 which is the 38% retracement of the 2020 low and 2020 high. Price resistance is at the 200 day MA at $14.56. If you still have old crop soybeans, making sales above $14.40 is a good strategy.
November 2023 Soybean futures put in a low of $12.20 on Monday but bounced back higher for the day. To confirm a turnaround in prices, futures need to close above the 8 EMA at $12.50. The charts may also be flashing a price rebound. This is based on a price divergence pattern where the futures make a new low, but the slow stochastics price momentum indicator does not. This price pattern can be found on the July and November soybean charts and the December corn chart. If we do get a rebound, the first target is the old price support at $12.60 followed by the down trend line at $12.90. Price support level is at $12.07 which is the 38% retracement from the 2020 low to 2022 high. The potential of a record soybean production from South American and U.S. has pressured prices. The $13.00 to $13.30 price range would be a good place to make some new crop sales.
Wheat-
July 2023 wheat futures peaked back in October, and prices have been in a steady down trend. Futures put a low in on May 3 at $6.04. Just as in December corn, the low on May 3 was a reversal candle with a lower low and higher high from the previous candle. Futures are attempting to rally off the bullish USDA report from last Friday. The first resistance will be the 50 day at $6.80 followed by the down trend line at $6.85. A 38% retracement off the $6.04 low and the $9.40 high from last fall is $7.32. The 50% retracement is at $7.72, and the 62% retracement is at $8.12. Seasonally, futures tend to make a third price rally into May before harvest. I would focus sales on rallies back into the $6.80 to $7.72 price range.
Cotton-
July 2023 Cotton futures are trading in a range between 88 and 78 cents since last fall. However, since February, the highs have trended lower, and this can set up a price squeeze and a pop in prices. Stay in close contact with your cotton buyer. Resistance is at the down trend line at 83 cents followed by the 200 day MA at $84.90. Price support is at 78 cents. The low from last fall is at 70.50 cents. Focus on making sales back in the 86 to 88 cent price range.
December 2023 Cotton Futures have been in a down trend for 2023 with resistance at 83 cents. Price support is at 78.5 cents. The next price support is at 76 cents and the fall low is at 70 cents. Last year’s summer highs are at 98 cents. Stay in close contact with your cotton buyer. I would use any rallies above 86 cents to make some new crop sales.
Rice-
July 2023 Rice futures have had a nice rally from early April to the middle of May. However, on Monday, futures were down hard. Futures need to hold Monday’s low at $17.80 with the next price support at the up-trend line at $17.60 followed by $17.00. Price resistance is at Monday’s high at $18.60 followed by February's high at $18.80. Stay in close contact with your rice buyer. For old crop sales, I would use rallies back over $18.00.
September 2023 Rice futures may have broken above the downtrend that has been in place since February. Price support is at $15.20 followed by $15.00. The April low is at $14.50. Price resistance is at $15.90. Stay in close contact with your rice buyer. For new crop sales, I would use rallies back into the $15.60 to $16.00 price range. ∆
David Reinbott: Agriculture Business Specialist, University of Missouri