Weather And Its Impact Most Important Factor To Supply And Crop Prices
DAVID REINBOTT
BENTON, MISSOURI
The commodity markets were closed Monday February 21, 2022 for the President’s Day Holiday. Markets will reopened Monday night and price direction will be influenced by the weather forecasts from South America and the conflict or lack of conflict in Russia and Ukraine. I think these two factors will be the major driver of prices for this week. Everyone is looking for a correction in the markets including myself. So far, any pull backs have been buying opportunities for the next leg up.
The weather in South America has been talked about many times over the past months. I believe weather and its impact on acres planted, harvested acres, and yields is still the most important factor when it comes supply and crop prices.
The La Nina weather pattern resulted in a drought in southern Brazil, northern Argentina and Paraguay. The production reports coming out of South America continue to indicate a smaller soybean and corn crop but not a total Country wide crop disaster. There is concern that hot and dry weather will return to further reduce corn and soybean production. The northern regions of Brazil have had the opposite weather of too much rain. It has delayed their harvest and their exports. The second crop corn is getting planted and has adequate moisture and is off to a good start. The key will be the growing conditions going forward.
In the U.S., it remains dry in the western plains and the major hard red winter wheat growing regions. The rains and snow were probably not enough to help the wheat crop at this time. However, wheat seems to be able to take a lot of adverse weather and still have good yields. Also, it is dry in Texas and that will have an impact on the cotton acres planted and harvested. The dry weather could result in more cotton acres planted but if the drought continuous it could lead to more acres not harvested.
Exports sales and shipments need to be watched. China still has not taken shipments of all their corn and soybeans they bought in 2021. The question will they take the shipments or cancel? For corn and soybeans, it looks like the export projection by USDA will be reached.
Also, soybean meal prices have been higher on the concern of a lower Argentina and Paraguay soybean crop. Argentina exports soybean meal to China and if they have a smaller crop that could mean more meal exports for the U.S.
There is also the basket of other factors in the U.S. and the world that will impact crop prices including the overall uncertainty what is happening in Russia and Ukraine, COVID-19 and all the variants, inflation, interest rates, economic growth, energy prices, crop acres planted this spring, biofuels, and etc, and etc. This will all have an impact.
Technically, March corn futures are in an upward price channel. The moving averages have been good support levels on all pull backs since fall. Prices should remain in this channel until there is a shift in the supply and demand of corn in the U.S. and the world. Factors to watch include the drought in South America, export sales and shipments, ethanol use, and possible export disruptions from the Ukraine due to a possible conflict with Russia.
December corn futures continue to trend higher. Prices have run into resistance at $6.00. From the weekly chart the next resistance is at $6.38. For 2022, most are expecting fewer corn acres and declining ending stocks.
March soybean futures have rallied on the drought conditions in southern Brazil, northern Argentina, and Paraguay. Prices have run into resistance at $16.00. From the monthly chart the next resistance is $16.30 to $16.70. Support is at the uptrend line at $15.50. The key to price direction going forward is will the dry weather continue in South America, export shipments and sales and the possible conflicts in Ukraine.
November 2022 soybean futures continue to move higher on the dry conditions in South America. First resistance is from the high of June of 2021 at $14.80. Price support is at the uptrend line at $14.40. The adverse weather in southern Brazil is the most bullish news. The direction of prices will be heavily influenced by South American weather, export sales and shipments, and planted acres this spring.
July 2022 wheat futures is setting up a potential bullish inverted head and shoulders price pattern with a price target of $8.80. However, prices need to first break above the price resistance at $8.10. If the conflict in the Ukraine increases with dryer conditions in the southern plains, it could fuel the rally to $8.80.
March Cotton futures have stalled out at $1.29 and have pulled back to $1.21. The next resistance levels will be around $1.50.
December Cotton futures have also had a nice rally since early December. Prices have not been able to break above $1.06. First major resistance above $1.06 is in the $1.10 to $1.15 price range. There is still a lot of uncertainty in the markets including acres to be planted in 2022 and the world economic growth going forward.
March rice futures have trended higher since mid-December. First resistance is at $15.58. From the weekly charts the next resistance levels are from $16.50 to $17.50. Price support is at the uptrend line at $14.80.
September rice futures have been trading higher since November. First resistance is at $14.85. From the monthly charts the next resistance is at $16.00. Price support is at the trend line at $14.50.
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. To signal buys and sales 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. ∆
DAVID REINBOTT: Agriculture Business Specialist, University of Missouri