What a great way to end the week…with higher prices! July corn finished the day up 1/2 cent, with new crop up 3 cents. Soybeans closed near the high of the day. July settled 16 cents higher with November adding 13. Wheat also joined the party. July CBOT finished 18 cents higher, KC up 14 and MPLS rallied a nickel. A combination of both technical and fundamental factors supported today’s rally.
For the week, old corn gained a dime with new crop up 9 cents. July soybeans finished the week nearly 38 cents higher and new crop gained 26 cents. Wheat gains were mixed. July CBOT was only up 1/4 cent, KC down 4 cents with an 11 cent gain in MPLS wheat.
The payroll report came out today, and numbers were lower than expected. The April payroll rolled in at 175,000, down sharply from the March number of 315,000. US unemployment ticked up slightly to 3.9% in April. Today’s numbers give the Feds wriggle room to justify cutting interest rates yet this year. Treasury yields seen the biggest weekly drop in months. The Dow reacted by posting a 450 point gain. Gold was slightly higher. Oil fell $.80 barrel, and has seen one of its largest weekly declines since February. A drop in demand, higher US supplies and an easing of tensions in the Middle East pressured prices this week. The dollar was .260 points lower.
Today’s rally was about U.S. and global weather headlines. We suspect short covering by the Funds exaggerated today’s rally. The Funds are sitting on very large short positions with the entire growing season in front of them. It has worked out well for them to date, with the exception of the past couple of days.
There hasn’t been much planting progress this week. And, there seems to be quite a bit of disagreement on future forecasts between the NWS and privates. The map below is the past 7 days precipitation. Some areas are exceptionally wet. As we mentioned yesterday, the key is to have 50% of the corn in the ground by May 10 for a better chance of above trendline yields. Will we get ‘er done?
Below is the forecast for next week which takes us out to next Friday the 10th.
But, wait….what is this? A DRY forecast? The 8-14 day is also dry (and cooler). The privates don’t necessarily agree with the NWS, they think the NWS went too dry. However, how many times have we seen the weather flip from one extreme to the next? More than we care to count unfortunately.
Will the latest 6-10 and 8-14 day forecasts kill the rally? Maybe, but it is subject to change and often does. But, today’s rally really wasn’t really about US planting delays….
Mother Nature is messing with the weather across the globe.
(1) The number one wheat exporter in the world, Russia, is experiencing a drought. Not much rain is expected in the next 10 days which is hurting their wheat crop. Production estimates are falling.
(2) Leafhoppers are destroying corn in Argentina. Buenos Aires exchange cut its corn estimate by 118 million bushels to 1.831 billion. If correct, it would be the lowest production total in seven years. Other estimates are not as low.
(3) Frost and freezes hit southern Argentina this morning, which may have damaged soybeans.
(4) There is concern the U.S. HRW crop will continue to decline due to heat and moisture stress in the southwestern areas of the Plains. Some areas could receive rainfall, but not enough to end recent crop stress.
(5) Hot and dry weather in central Brazil is hurting the safrinha corn. The forecast is dry for the next 10 days that will affect 70% of the safrinha region.
(6) And, the granddaddy of them all….the number two soybean producing state in Brazil is getting hit by torrential rains and flooding. Rio Grande do Sul has about 25% of beans yet to harvest, and some of it is under a foot of water. More rain is in the forecast. Loss estimates all over the place. We have seen estimates from 36 to 185 million bushels of loss potential. That is like cutting our US carryout in half! What makes it more interesting is that there is a 400 mbu spread between the U.S. Brazil estimate and CONAB (Brazils version of USDA). Someone is wrong. We just don’t know which party.
Does today’s price action make us bullish? Not really. It is, however, a good opportunity to price both old and new crop bushels. Next Friday the USDA will publish their first new crop balance sheet. It is going to show ample supplies of corn, soybeans and wheat. That will be negative to prices, and if the dry forecast hangs around….higher prices will not likely last.
Technically, prices have room to rally. The charts look constructive. The 50% retracement level for July corn is $4.78. Since December corn closed above $4.80, the next target is $4.86 1/2. July beans will likely target the 100 day Moving Average of $12.22, with a possible move to $12.42 1/2. November soybeans closed above $12 today, with the next target of $12.16 3/4. The 200 day MA for July CBOT wheat is $6.25.
We know these aren’t great prices, but they are above the spring crop insurance prices of $4.66 corn and $11.55 soybeans. The market doesn’t care if you turn a profit or not, and the downside risks are real even if we don’t produce a new record yield. You don’t have to sell all of your crop, just a percentage to shed some risk.
Have a good weekend.
