Technical Analysis: May 29

Corn

Markets were closed Monday but starting on Tuesday, July Chicago Board of Trade corn declined response to wheat’s decline and the increasing value of the dollar.  There was a slight rally on Thursday but prices were down again on Friday.  Support lies at $3.48 and resistance lies at $3.67.  Funds are currently short a record 177,000 contracts so if there is even the slightest weather scare to start the buying we could see a pretty significant rally.

July CBOT Corn: May 29

Wheat

Kansas City July wheat declined this week as trade began to focus on the impacts on adequate moisture across wheat growing areas.  A reduction in quality scare last week gave the market the nudge it needed to get the short positions to start covering, and cover they did.  This week trade thinks that although there may be quality problems, there will still be a large number of bushel to be sold causing prices to drop and the gain from last week to be lost.  Short term support lies at $4.97 while long term support lies at $4.85.  Resistance is at $5.61.

July Kansas City Wheat May 29

Tucker Talk: May 29

Planting with Fertilizer

Planting with Fertilizer

Corn

Trade is worried about feed use estimates.  Feed usage has been below what it was last year for 2 quarters now and feed usage will need to be up 30% from last year’s third quarter in the June 30 report to support the USDA’s annual feed use estimate.  With a 2 million bushel old crop carryout looming, any reduction in estimated feed use on June 30, and continuing favorable weather, could result in further drops in corn prices.  Producers are reluctant to sell old crop and new and are willing to build additional storage for this next year’s crop.

China might weaken in its rejection of GMOs.  China currently uses imported GMO grain for only livestock feed but is currently looking to improve farm productivity on marginal ground.  They are looking into allowing planting of GMO grains in the next 3 years.

Ever wonder how the USDA comes up with their yield estimate on their supply and demand reports? It involves several factors but one is when planting occurs.  They look at planting progress reports and whether a majority of it occurs before April 25, between April 25 and May 15, or after May 15.  Read more below.

http://www.agweb.com/article/how-will-early-planting-affect-your-corn-yield-NAA-alison-rice/

Corn Crop Condition Report: May 25, 2015

Corn Crop Condition Report: May 25, 2015

Wheat

Values spiraled lower this week despite excessive rains in Texas and Oklahoma.  Trade is anticipating increased bushels due to the wet conditions even though there may be a sharp decline in quality.  “There will still be bushel and those bushel will have to go somewhere.”  There are currently dryness concerns in Canada and southern Russia.  Russia is estimating grain production levels equal to 2014 but private analysts put it below that.  Funds went from being short a record 104,000 contracts on May 14th to 68,000 contracts on May 26th which resulted in the $0.55 rally last week which we lost again this week.

Nebraska Wheat Crop Report

Crop Report May 27 2015

The Russian government has approved a new wheat export tax to start on July 1 in order to protect exports if the Russian Ruble starts to decline.  The tax only goes into effect if wheat prices reach 13,000 Rubles/ton ($247/ton, $7.41/bu).  Exported wheat is currently going for 10,526 Rubles/bu ($200/ton, $6.00/bu).

Trade is debating the impacts El Nino will have on crop production this year.  Just to clarify, El Nino is the warm phase of a band of seas surface temperatures and is associated with a band of warm ocean water that develops in the Pacific ocean near the equator.  El Nino has a large impact on weather conditions in the Midwestern United States.  El Nino is currently located further east in the Pacific Ocean than usual so not much historical data is available on long-term impacts on Midwestern crop conditions.  Earlier in the year, they were predicting a cooler, wetter summer but there are now forecasts that indicate temperatures will be higher than normal across many of the growing areas.  This could increase yield estimates as soil moisture is adequate and warmer temperatures would be beneficial to crop development.

Technical Analysis: May 22

Corn

July Chicago Board of Trade corn rallied on Monday pulled up by wheat and the prospects of reduced acres due to wet conditions preventing planting.  Strength in the dollar and a corresponding fall in wheat prices then pulled corn down before another rally on Thursday.  The short-term trend for corn looks neutral as it remains between initial resistance at $3.70 and support at $3.57.  The long term trend is bearish with long term support at $3.55.  Any loss below this level will open up further declines.

Corn May 22

Wheat

July Kansas City wheat has been choppy this week as funds continue to cover record short positions.  Prices have been testing the 100-day moving average ($5.52) resistance all week while funds continue to cover shorts and the rest of the market plays the weather game.  Price closed above the 100-day moving average on Thursday but could not close above resistance at the May 18 high of $5.64.  The short term trend for wheat is still slightly bullish but the overall trend remains bearish.  Resistance is still at $5.61 with support at the 100-day moving average of $5.52.  Medium term support lies at $5.28 and long term support at $4.85.

Wheat May 22

Tucker Talk: May 22

Planting

Corn

Trade is debating whether this year will turn out to be one of those rare years with no significant weather scare with prices plunging to significant August lows like in 2000, or if this year will be one where the rains stop and prices jump to all-time highs like in 2012.  The former is looking more like the case with favorable topsoil moisture reported all across the corn belt.  In fact, topsoil moisture may be too favorable, preventing corn planting in many areas.  In western Nebraska and southwest South Dakota, corn that is planted has been in the ground for 3 weeks without emerging or it has emerged and has been subject to below freezing temperatures.  Trade is anxious that corn acres will be switched out for other crops such as soybeans or sunflowers if planting cannot continue.  This is certainly the case in western Nebraska with the forecast looking wet into the first week of June and there is talk of corn seed exchanges at the local agronomists.

Wheat

Most of the rally this week is attributed to fund short covering with some fundamental aid coming from concerns that wet weather in Texas and Oklahoma will cause some yield and quality loss, and anxiety over hot, dry weather in southern Russia having negative impacts on their wheat crop.  Snow and cold weather in the panhandle of Nebraska and southwest South Dakota have stressed the winter wheat crop.  Two occurrences of snowfall between 6 and 8 inches laying on the wheat has raised concern of broken stems and temperatures below freezing have had varying impacts, depending on which stage of growth the plants are in.

The following is the more detailed Nebraska Wheat Report.

Crop Report May 20 2015

Seasonally, there is a strong tendency for wheat to rally slightly in the spring but then decline from then into mid-July harvest season.  The recent rally has priced US wheat above the rest of the world and economic theory states that prices will have to come down if we want to sell any wheat.

Marketing

I want to stress that although there has been a good rally in both corn and wheat this week, it does not mean that this signals a long-term bullish trend.  The overall long-term outlook is still bearish for both wheat and corn.  The majority portion of this week’s rally is the result of funds covering record short positions in both Chicago CBOT corn and Kansas City wheat futures.  The dollar has surged this week and there is a direct negative correlation between the movement of the dollar and the movement of grain prices.  When the dollar goes up, the prices go down.

Historically, the markets follow a neutral sideways pattern until the May USDA supply and demand report is released.  After this report, the market can loosen up and begin to move.  Volatility begins to enter the market creating periodic rallies in prices.  These rallies would be good opportunities for producers to price old crop bushels that they are still in possession of if they want to move them before this year’s harvest.

Some crop insurance information.

Crop insurance information for Box Butte count Nebraska.

Crop insurance information for Box Butte count Nebraska.

Technical Analysis: May 15

Corn

July CBOT corn rallied to a higher close on Thursday trading through the resistance level at the 10-day moving average but couldn’t quite get above the 20-day moving average.  Corn has been trading under the 20-day moving average for the last 5 weeks so this is an important resistance level at $3.68.  The next resistance level lies at $3.70 and any trade above this level would signal a bullish trend.  Overall, the intermediate trend for corn is bearish with support levels at Thursday’s low of $3.61 and long term support at the May 5 low of $3.55.

July Chicago Board of Trade Corn

July Chicago Board of Trade Corn

Wheat

July Kansas City wheat rallied an incredible $0.34 on Thursday in response to weather concerns, increased demand, and short fund covering.  The rally pushed through resistance levels at the 10-day, 20-day, and 40- day moving averages.  The primary trend for wheat is bullish but the short term trend has turned bullish with yesterday’s rally.  As long as these levels hold the medium term trend will also be bullish. Initial support lies at the April 23 high of $5.28 and long term support lies at the May 5 low of $4.85.  Short term resistance lies at the 100-day moving average value of $5.58.

July Kansas City Wheat

July Kansas City Wheat

Soybeans

July Soybeans did not show any major changes on Thursday as wheat and corn rallied.  Prices are currently hovering above the support level of $9.49 and is currently in a sideways trend between this support level and resistance at $9.97.  A breakout below this support would signal a bearish trend.

July Soybeans

July Soybeans

Tucker Talk: May 15

Raining

Rain Rain Go Away

Corn

Planting progress was at 75% across the nation in Monday’s report (Figure 1).  This is up from 55% last week and 55% last year.  Trade is worried about planting progress slowing this week as rains continue to drift across the corn belt. There is talk of decisions being made to switch to beans because corn planting is not possible in some areas.  Informa reduced estimated corn planting acres and increased soybean acres.

Corn Planting Progress

Corn Planting Progress 5/11/15

El Nino is expected to be favorable this year resulting in a cooler, wetter summer.  Historically, corn yields tend to be higher in an El Nino and prices tend to drop for the first few months only to recover slightly, then drop sharply again going into harvest.

Overall the corn market looks bearish.  The avian flu H5N8 continues to thrive with the number of poultry affected now exceeding 30.73 million birds.  Feed usage will be impacted but the extent of the impact is not known.  China and Mexico have made announcements that good corn production will cause them to reduce imports into each of their respective countries.  There are plentiful old stocks we are carrying in from last year and there looks to be a good corn harvest this next year due to a favorable El Nino.

Wheat

Wheat condition was at 44% in Monday’s crop condition report which is up 1% from last week and 14% from last year (Figure 2).  However there was concern later in the weak of condition dropping due to rain.

Wheat Condition Reprot

Figure 2: Wheat Condition Report

Wheat saw a rally of $0.34 on Thursday in response to an increase in demand, weather scares, and short covering.  Thursday morning started with several countries buying about 400 thousand tons of wheat, then there was talk of rains in Texas and Oklahoma having negative impacts on harvest and protein levels.  Once the rally started, funds started covering shorts and prices rallied well above resistance levels

Wheat is a more global crop so impacts from El Nino are different than corn.  Prices rise during the first 3 months of El Nino due to drought conditions severely hurting Australia’s yields.

Overall the wheat market also looks bearish.  There is plenty of wheat in the world and the value of the US Dollar is higher relative to many other currencies which reduces the demand for US wheat and pushes prices down.  Russia dropped their export tax today and trade is estimating another 1 million metric tons will hit the market as a result.

Marketing

Marketing outlook meetings in Gordon, Hay Springs, and Hemingford this week went well.  Prices are well below costs of production for both wheat and corn and there is concern that it will be very hard to produce at a profit this year.  Producers may be ahead to diversify and produce other crops.

I would just like to remind everyone that calculating break evens is even more important this year and it is not always beneficial to cut back on inputs.  Cost per bushel decreases when more bushel are produced so improving your efficiency by applying larger amounts of some inputs could be beneficial.

I would also like to point out the availability of some contracts and marketing opportunities to help get you at or above your break evens.  Some contracts allow the producer to put a “floor” in so that they will not receive a lower price than the floor.  The recent 34 cent rally in wheat would easily pay for some price protection.  Other opportunities provide a premium in exchange for a firm offer on next year’s crops.  For more information on what is available, or if you would like to discuss break evens, contact me (Tucker) at my office (308-487-3325) or my cell (308-360-0830).  I would also be happy to schedule a visit.

Tucker Talk: May 1

Eggs

Corn

United States corn planting was slightly behind at the beginning of this week but ideal weather this week, and furious corn planting, may increase national corn planting progress to the historical average for the week (47%) by next Monday.  Planting efforts have halted most selling of old crop stocks which has caused basis to firm up in the eastern corn belt.  Once planting is done and if farmers start selling old crop again, basis levels can be expected to weaken again and prices could decline.

Now that we are trading May, there is likely to be some major fund positioning ahead of the May 12th USDA supply and demand report.  Historically, the May S&D report is one of the most anticipated of the year because it gives us the first official look at the new crop balance sheets.  Current estimates heading into this report have corn ending stocks from last year at 1.7 billion bushel.

 Soybeans

Grain hubs in the hub port of Rosario Argentina were “dead in the water” yesterday by the second day of pay strikes by unions associated with docking personnel and harbor captains.   Strike participants are demanding wage increases in line with annual inflation rates of 20-30%.  The strikes are occurring right in the middle of corn and soy harvest seasons.   Argentina is the world’s top exporter of soymeal livestock feed and its No. 3 supplier of raw soybeans so the strikes could create upward pressure on world prices.

There is talk that current soybean demand is under-estimated on old crop and ending stocks will be reduced creating bullish pressure on the market.  The story is different for new crop with higher-than-expected yields being reported out of South America which would generate bearish pressure on soybean prices.

 Wheat

Wheat prices have taken a major blow over the last month.  At the beginning of April, wheat prices in the United States were estimated at being up to $0.50-$0.80 over the rest of the world’s wheat prices causing importers to buy wheat from other sources.  The result was a drop in the prices in order to be competitive.

Check out the Nerbaska wheat crop report here: Crop Report April 30 2015

The latest drop in wheat prices is due to talk of the reduction in the Russian wheat tax before the deadline of July 1.  The export tax was implemented by the Russian agricultural service in order to protect domestic supplies when production was expected to be lower than normal.  The result was a reduction in Russian wheat exports by more than half what they were before the tax.  However, Russian wheat production is estimated at 59 million tons (almost par with 2014) and global prices are much lower than expected when the tax was implemented.  In response, there is talk of reducing the tax and possibly eliminating it before July 1.  If the Russian tax is reduced or eliminated, Russian wheat will be the cheapest in the market thus placing more bearish pressure on wheat prices. Read more here.

 Avian Influenza

The bird flu (avian influenza H5N2) that has been sweeping across the United States may be the worst in American history.  As of April 28, more than 15 million birds in 91 flocks in the US have been lost due to outbreaks of avian influenza.  These include losses of nearly 4 million turkeys, and 11.4 million chickens.  On Thursday April 29 there were unconfirmed reports that another 5 farms (5.5 million egg hens) had been infected and will have to be eliminated.

The impacts of reduced flock numbers on the grain markets is minimal.  It is estimated that there will be a loss in feed usage of 0.23%.  For comparison, the PED virus in hogs caused a loss in feed usage of 0.74%.  The major impact will likely be seen in egg prices with a 1.62% loss in market eggs.