Grain marketing commentary
Agriculture Business Specialist
University of Missouri Extension
April 18, 2016
USDA released their monthly supply and demand report last week. There was no big surprises. Ending stocks for the 2015-16 were projected at 1.862 billion bushels up 25 million bushels from last month and 17 million more than the average trade guess. Feed use was cut 50 million bushels and ethanol corn use was increased 25 million. The average farm price was cut 5 cents to $3.55 per bushel. World ending stocks were increased 2 million metric tons (mmt) to 209. Argentina corn production was increased 1.0 mmt to 28 and Brazil’s production was left unchanged at 84.0 mmt.
USDA will release their 2016-17 supply and demand estimates in the May report. Using the March 31 planting intentions of 93.6 million acres, ending will be in the 2.3 -2.4 billion bushel range. As I mentioned in my last letter, if acres are trimmed 1.0 million and using a liner trend line yield of 166.2 bu/ac. and a modest bump in use, ending stocks will be 2.1 – 2.2 billion bushel range. To get corn ending stocks to a more manageable level at 1.5 billion bushels or less, corn yield would need to be in the 160 – 158 bu/acre range which is 5% below the trend line yield.
Corn prices have had a nice rebound since the March 31 reports. This has been fueled by a weakening dollar compared to other currencies, good exports, and a second crop Brazilian corn crop that is getting smaller due to late planting and dry weather.
Looking out into the summer growing season, there is an elevated risk that corn yields could be below trend line. This is based on the diminishing El Nino weather pattern. The weather people that I am following are indicating that if the El Nino weather event continues to weaken at the present rapid rate, it increases the probability of a warmer than average summer. However, precipitation amounts are still uncertain at this time.
Technically, May has near taken out the March 31 report high and the next target is the 200 day moving average at $3.86. For December futures, resistance is at the March 31 high at $3.90 with the next resistance level at the 200 day moving average at $3.96. For old crop corn, I would watch the basis and use strength to make sales. For new crop, I would still focus most of my new crop sales into the summer months. If you want to make some sales now, I would look at buying call options to take advantage of any rallies this summer.
The USDA report was slightly bullish for soybeans. Ending stocks came in at 445 million bushels, 15 million bushels less than last month and 9 million less than the average trade estimate. Exports were increased 15 million bushels. World ending stocks were increased 1.0 mmt. Argentina production was increased 0.5 mmt to 59.0 mmt and Brazil production was left unchanged at 100.0 mmt.
In May, USDA will release their new crop 2016-17 supply and demand estimate. Using the March 31 planting intentions of 82.2 million acres, ending will be in the 375 – 400 million bushel range. As I mentioned in my last letter, if 1.5 million acres are switched to soybeans for total planted acres of 83.7 million, ending stocks would remain unchanged from last year. At a 5% reduction in yield to 43.2 bu/acre, ending stocks would be 282 million bushels.
Soybeans have also experienced a nice rally since the March 31 reports. This has also been fueled by a weakening dollar compared to other currencies and good exports. The Argentina soybean crop may be smaller than projected due to flooding. Also the weather risk of a weakening El Nino and the increased risk of hotter summer has also supported soybean prices.
Technically, May futures have ran into resistance at $9.60. For old crop soybeans, I would use this rally to make some sales. November futures have near term resistance at $9.70. The next resistance levels are at $9.85 and then $10.50. Price support is at the 8 exponential moving average at $9.54 and the next support levels are at $9.30 to $9.20. With this good run in the November futures and the possibility of more acres, it would be prudent to make some new crop sales at this time. If you do get aggressive on the new crop sales now, covering them with call options would be a good strategy to take advantage of a potential weather rally this summer.
Wheat ending stocks were projected at 976 million bushels up 10 million from last month due to a 10 million bushel cut in feed. World ending stocks were increased 1.0 mmt. When USDA gives the 2016-17 supply and demand projections in May, ending stocks will still be over 900 million bushels which will keep pressure on prices unless there are additional production problems in the U.S. and/or world.
Technically, July wheat futures seems to be trapped in a trading range of $4.85 and $4.50. Several of the major moving averages I follow are conversing at around $4.70 which will keep pressure on prices. Seasonally, wheat prices rally into May before turning lower into harvest. If prices do rally back up to the $4.85 level in the next few weeks, making some sales should be considered.
Cotton ending stocks for 2015-16 were trimmed 100,000 bales based on a slight reduction in yield. World ending stocks were cut 1.0 million bales. In the new crop balance sheet projections in May, look for ending stocks to be in the 3.8 – 4.2 million bale range.
It is important for a cotton producer to remain in close contact with his cotton buyer to get the most current price quotes.
Technically, December futures has ran into resistance at 60.5 cents and support is at the 50 day moving average at 58 cents. As I recommend for the other commodities, I would look to make sales for new crop more in the growing season as we get a better idea on acres and yields.
Rice ending stocks were cut 0.5 million cwt on a reduction in imports. World ending stocks were unchanged.
For cash rice quotes, contact your rice buyer to get the most current price quotes and cash price outlook.
Technically, July rice futures has ran into resistance at $10.70 and has support at $9.80. The 50 day moving has turned back all rallies since last fall. Presently it is at $10.80.