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Grains lower, worries persist about size of U.S. crops

Grain market week in review: Wheat price rollercoaster, export sales and Ag Marketing IQ.

Need to catch up on market news from the week? Here's what you missed.

Ag Marketing IQ

Ag commodity prices have been hammered since the start of 2020 – corn in part due to eroding ethanol margins and subpar export demand as our global competitors discounted values and growing production continues to pull buyers away from the U.S. Then came coronavirus which drove corn, beans, wheat and cotton prices to, in many cases, levels we’ve not seen for five plus years. 

What a difference a year makes. Just 44% of the corn crop was seeded in mid-May of 2019 according to USDA’s weekly progress report. This year, 80% of the nation’s fields were planted, a little ahead of long-term averages. The 80% benchmark bears watching. It’s the standard used in a popular model for predicting corn yields based on July weather and indications of extreme stress during June in eight key Midwest states. My own version of this model also includes the weekly crop ratings USDA likely will begin this year for corn June 1. Together, these variables account for 97.5% of the variance in U.S. corn yields since 1986, when the weekly ratings began.

There are two ways to analyze commodity markets: fundamental analysis and technical analysis.  Most farmers are familiar with fundamental analysis; the study of supply and demand such as weather, exports, yield, etc. Fundamental analysis appeals to our sense of logic. When there is a drought, supply drops and therefore prices should rise. But technical analysis has proven just as capable in studying future price movements. 

Corn futures have crawled higher over the past two weeks. July corn futures hit a low of $3.09 on April 21 in the midst of the ethanol shut down. On April 29, July corn futures retested that low price area on daily charts and finished the day higher. July futures posted a bullish reversal on daily charts, which is often interpreted by technical traders as a bottoming signal. Prices have been very cautious to rally on just this technical signal alone however, as bountiful U.S. corn supplies seem to be on the horizon.

Exports

USDA’s grain export inspection report for the week ending May 14 didn’t hold a lot of bullish data for traders to digest, although wheat showed some upside after firming 28% from a week ago. But corn and soybeans both spilled lower versus last week, although both crops stayed within the range of trade estimates.

Soybeans emerged as the clear leader in grain export sales for the week ending May 14, according to data from USDA’s latest weekly report. But wheat exports stumbled 39% below the prior four-week average, and corn sales were also relatively disappointing after taking an 18% dip from a week ago.

Podcast

Wheat prices have been on a rollercoaster ride so far in 2020, with two large swings up – and back down – since January. Farm Futures grain market analyst Jacquie Holland and senior editor Ben Potter sat down to discuss what fundamentals are currently in play. We also took a closer look at two factors that are moving the needle on corn prices right now. Planting progress has been speedy nationwide, but there are a few trouble spots worth exploring. And ethanol production is gaining some momentum, but will it be enough to create rally opportunities later this spring?

Recaps

Corn futures tumbled this morning as lower energy prices amid reduced Chinese growth forecasts caused investors to question ethanol demand. Strong planting progress also raised concerns of a record-high harvest this fall. Reduced Chinese growth outlooks and lingering issues with African Swine Fever in the Chinese hog industry send July soybean futures prices tumbling in overnight trading. The wheat complex traded lower a round of technical selling this morning after concerns over Russian production forecasts led futures prices higher for the past three trading sessions.

Grain prices were lower Friday as traders squared positions ahead of the holiday weekend. Corn prices eased fractionally, and soybean prices saw modest declines as worries persist over the potential of record-breaking U.S. crops this year. Wheat saw even bigger declines, with some contracts down more than 2% today after some favorable rains are expected to land in the U.S. Plains this weekend.

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