Grain marketing commentary
Agriculture Business Specialist
University of Missouri Extension
May 3, 2016
Corn prices have rallied along with the other commodities on production problems in the South American corn and soybean crops, weaker dollar, good exports, big commodity funds liquidating short positions, and just normal spring planting concerns and uncertainty. The dry weather in northern Brazil and its impact on the safrinha or second crop corn needs to be watched. Those who follow the South American corn production closely have trimmed their production by 3.0 mmt to 79.0 mmt. Last year they produced 85.0 mmt. Also soybean production in northern Argentina has been lowered due to excessive rains and flooding. The volatility we have experienced the past few weeks from South American weather and production problems, may give us a glimpse of what we may see this summer if we have any weather problems.
USDA will release their 2016-17 supply and demand estimates in the May 10 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 previous letters, if acres are trimmed 1.0 million acres with a linear trend line yield of 166.2 bu/ac. and a modest bump in use, ending stocks will be in the 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.
Looking out into the summer growing season, there continues to be 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, December futures are chopping around sideways in the $3.95 to $3.85 range right below the 200 day moving average. If we do not get any additional bullish information soon, prices will probably slide back to at least $3.80. Price resistance is at $3.95 and the high from 2 weeks ago at $4.05. Unless Brazil’s corn production continues to drop significantly and/or planting delays in the U.S. the next two weeks, I think we may have seen our spring highs. The next run up would be weather problems in the U.S. this summer. For new crop, I would focus additional sales into the summer months. If you want to make some sales now, I would look at buying call options to cover sales and take advantage of any rallies this summer.
Soybeans have rallied on some of the same reasons I mentioned for corn. Firms who follow the Argentina soybean crop closely have cut their production estimate 2 mmt to 25 mmt due to excess rains and flooding. Presently, it is has turned dryer and prices have pulled back. How much actual flooding damage was done and the weather going forward will all impact production and prices.
May 10, USDA will release their new crop 2016-17 supply and demand estimate. Using the March 31 planting intentions of 82.2 million acres, ending stocks 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.
Technically, November futures continue to trade higher with resistance at $10.20 and support at the 8 exponential moving average at $10.04. A break below $10.04 and prices could easily fall to $9.80 with the next support level is at $9.60. Just as in corn, bullish news will be needed to keep prices moving higher. If you are wanting to make some new crop sales now would be a good time to do it, because I think prices could easily retrace back to the $9.80 to $9.60 price level. Going forward, I would focus most of your additional sales into the summer months on potential weather allies. Buying call options to cover spring sales would be a good strategy.
Wheat still has questions on production both in the U.S. and the world. However, with big stocks in the U.S. and the world, prices will remain under pressure. When USDA gives the 2016-17 supply and demand projections on May 10, ending stocks will probably be over 900 million bushels.
Technically, July wheat futures are in a trading range of $4.95 to $4.70. The 200 day moving average is at $4.95 and will be strong resistant. If the opportunity to make some cash sales $4.95 or greater, a farmer should take advantage of it.
When USDA releases their new crop balance sheets on May 10, 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 near term support at 62 cents and resistance at 63.5 cents. The next resistance levels are in the 65 to 66 cent range. As I recommended for the other commodities, I would focus the majority of sales more in the growing season as we get a better idea on acres and yields.
For cash rice quotes, contact your rice buyer to get the most current price quotes and cash price outlook.
Technically, July rice futures have run into resistance at $11.50 and price support is at $11.00. The next resistance levels are at $12.00 and $12.40.