The grain and cotton futures bulls got a good taste of humble pie late last week after starting out the week snorting with hubris. July corn (ZCN26) futures on Friday fell 11 3/4 cents to $4.55 ¾, hit a three-week low, and for the week were down 16 1/2 cents. July soybean (ZSN26) futures Friday fell 15 1/2 cents to $11.77, hit a three-week low, and for the week were down 31 cents. July soft red winter (SRW) wheat (ZWN26) futures fell 22 1/4 cents to $6.35 3/4 but for the week were up 16 3/4 cents. July hard red winter (HRW) wheat (KEN26) futures lost 17 1/4 cents to $6.88 but for the week were up 12 1/4 cents. July cotton (CTN26) futures on Friday fell 333 points to 80.61 cents, hit a two-week low, and for the week were down 412 points. However, good price gains in all the above markets early Monday put the bulls back on more solid footing.
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www.barchart.com U.S.-China Summit Initially Disappoints Ag Traders
Grain futures saw bullish enthusiasm at midweek last week as soybeans hit a two-month high and July winter wheat futures scored over two-year highs for the contract. Cotton futures at mid-week hit a two-year high. Then the bottom fell out of the markets on Thursday and Friday.
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Heading into last week’s U.S.-China summit meeting between Presidents Donald Trump and Xi Jinping in China, grain market bulls were very upbeat about the prospects of more Chinese purchases of U.S. grain. However, they got “wrong-footed” when no concrete details on Chinese purchases of U.S. ag products came out of the meeting. While Trump and other administration officials did signal China would buy “billions” of dollars’ worth of U.S. ag products, U.S. Treasury Secretary Scott Bessent last Thursday said the U.S. and China already made a deal on China buying U.S. soybeans.
However, the weekend news that saw both the U.S. and China provide more specifics on China ag sales from the U.S. was a pleasant surprise for bulls and markets rallied sharply early Monday.
Still, the last two trading sessions of last week have humbled them, including the speculators who had recently climbed aboard the bullish train. Weak long liquidation and profit taking from the specs were featured Thursday and Friday. Traders tend to overdo it on the upside, as witnessed earlier last week, but also overdo it on the downside, as seen the past two trading sessions to end the week. I don’t look for more downside price potential in the grain futures markets in the near term. Monday’s pop in grain futures prices has reinvigorated the bulls.
Corn and soybean traders will keep watching the weekly USDA crop progress reports on Monday afternoons. So far this early growing season, no serious problems have emerged for the U.S. corn and soybean crops. However, Nebraska to north-central Iowa, southwestern and south-central Minnesota, and east-central South Dakota see soil moisture as marginal to short. Also, another round of frost will occur in the northwestern Corn Belt Tuesday into Thursday. Some crops could be vulnerable to damage.
The bright spot in grains last week was that the soybean meal (ZMN26) futures market came back to life, with July meal hitting a five-month high on Friday. That also suggests the downside is limited in soybeans — and that bean futures prices at present levels are probably overdone on the downside.
(Put daily chart for July soybean meal futures here.)
Don’t be surprised to see some degree of a weather market scare pop up rapidly in corn and/or soybeans in the coming couple months. More years than not, one occurs. They develop quickly and can then fizzle out just as fast. It’s a long, El Nino growing season for the U.S. corn and soybean crops.
Poor U.S. Winter Wheat Crop Should Limit the Price Downside
There are bullish fundamentals in the wheat market that are likely to come back to the fore. Drought and hard winter weather have taken a toll on the U.S. winter wheat crop, and especially HRW. The final estimate from last week’s Wheat Quality Council’s annual crop tour put the average yield for the Kansas crop at 38.9 bushels per acre. That’s well below last year’s forecast of 53 bushels per acre. Monday afternoon’s weekly USDA crop progress reports and the U.S. winter wheat condition ratings will be closely scrutinized by wheat traders.
Last week’s USDA monthly supply and demand report confirmed tightening domestic wheat supplies. All U.S. wheat production in the U.S. is expected to decline sharply, which could elevate volatility and again rally futures prices.
Cotton Market Hammered Late Last Week
Last week’s huge selloff in the cotton futures markets suggests the bulls have run out of gas as the bottom has fallen out of the market, including prices trading down the daily price limit for a period Friday. Sharp losses in the grain futures markets late last week spilled over into strong selling pressure in cotton futures. Like grain traders, the cotton market bulls were also initially disappointed by the lack of concrete results regarding any new China purchases of U.S. ag products at last week’s Trump-Xi summit meeting. The late-week downdraft in cotton futures did break the price uptrend on the daily bar chart, which is one technical clue that the market has put in at least a near-term price top.
Bulls can still argue that elevated crude oil (CLM26) prices will likely persist in the coming months, while the U.S. stock indexes last week hit new record highs. These elements should keep a price floor under the cotton market.
An improved longer-term technical posture and waning global cotton production are likely to continue to provide support for cotton futures in the coming months.
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On the date of publication, Jim Wyckoff did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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