Special Market Update – May 10, 2022
Cereal Market Commentary
Tuesday, May 10, 2022
by Rhett Montgomery, Associate Dealer, The Andersons
Markets stabilized after a “risk-free” week last week, trading both sides unchanged before closing higher. Old Crop July Corn (CN22) closed at $7.7525, up 3.25c. December Corn New Crop (CZ22) closed at 8.25c at $7.19.
Improving planting conditions in the US along with several macro concerns made for a challenging week of trading for commodities and equities. A strong US dollar, higher interest rates and the COVID shutdowns in China put pressure on all markets last week. Plantings in the United States remain well below the 5-year average pace, with yesterday’s crop progress report pegging the percentage planted for the 18 major producing states at just 22%, down from 64% l last year and 50% on average over five years. This report has stabilized the market for the time being, however, the main driver of the pressure last week with regards to plantings is that weather conditions in much of the corn belts have turned into hot/dry conditions and are expected to allow a good 7-10 day window for the major growing states of Iowa/Illinois/Nebraska/etc. to catch. Next Monday’s crop progress report will be a key thing to watch.
May’s WASDE report was released this Thursday at noon EST. This report is important as the USDA will release its first look at the 2022/23 balance sheet. As it stands, it is expected to use the March planting intention count for corn of 89.5 million acres and a trend yield of 181 EPS. On the old crop balance, international adjustments will be interesting to watch, a historically very dry April for Brazil’s main growing areas combined with the ongoing Russian invasion of Ukraine could potentially indicate reductions in supply/exports in that country. China has also recently stepped in and started buying US corn again, which should also combine to maintain a bullish fundamental picture heading into the summer growing season.
In technical data, looking at the December CZ22 corn chart, we tested chart support yesterday and today at $7.14 and held. The target for the bears will be near CZ22 below $7. Beyond that, the target would be a 23.6% retracement from the 2020 low at $6.65. For the bulls, the target for a resumption of the rally will be near CZ22 above $7.50. We made 2 closes above that mark and set the current contract at $7.57 on day two. A series of closes above $7.50 will set $7.75 as the next higher target, with the ultimate historical driver being the December 2012 board high of $8.40.
CORN TERMS TABLE CZ22 DECEMBER 2022
November New Crop Soybeans (SX22) traded 8c higher today, closing at $14.5475. Old Crop July Beans (SN22) traded up 7c on the close at $15.9225.
Soybean futures have fallen about $1 since hitting penny contract highs on the old crop. Concerns about China’s appetite for soybean imports as well as its capacity amid the shutdown are a major driver of the decline. Like maize, the near-term potential for an increase in planting rates has also put pressure on the market. One important thing to watch out for during this planting season is how the timing will affect which crop you choose between corn and beans. Does the late window combined with a soybean/corn price ratio of 2 prompt more corn acres by the June ratio? Barring a demand shock in China, the soybean balance sheet remains very intriguing for the future, especially in 2022/2023. A loss of acreage in the United States following the difficult 2022 harvest in South America would leave global soybean supplies very tight.
In technical terms, looking at the November SX22 bean chart, the beans are oversold in the short term, any post WASDE rally report would again target $15.00, above $15.40 and 15.58 $ are high marks for the contract. On the downside, the market tested support yesterday in the upper $14.30 and held, a close below $14.37 would set April 1st test of $14 SX22 as target for bears. The space below that and the next support is very wide and made up of the Brazilian crop failure premium which at this point feels like it has to stay because this crop issue has been realized.
NOVEMBER 2022 SX22 SOYBEAN FUTURES TERMS CHART