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April ends on highs, but May starts under pressure

After hitting multiple new contract highs and levels not seen in almost 10 years, the need for a technical retracement was evident.

Tractor pulling grain drill on field edge
Jared Goplen rolls his tractor pulling a grain drill into a field near Canby, Minnesota, on April 26, 2022, to seed some wheat. The wheat so far during the spring had been too cold for most farmers to start planting corn.
Jeff Beach / Agweek
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Editor's note: Catch Randy Martinson every Friday after markets close on the Agweek Market Wrap at agweek.com.

The last week of April saw a lot of new contract highs. As the last week of the month was coming to a close, Minneapolis wheat, corn, soybean oil, canola, and cotton were all trading at or near contract highs with some contracts trading to all time highs (soybean oil and canola). Slow planting progress, weather concerns in both the U.S. and South America, world production concerns, and the need to entice an increase in world acreage all combined to push the grains higher.

But after hitting multiple new contract highs and levels not seen in almost 10 years, the need for a technical retracement was evident. The grains can’t go up every day, but that also means they can’t go down every day. The market’s job is to find a price that allows for demand to be robust without depleting supply completely. The market seems to have found that with the recent highs ($12 wheat, $8 corn, and $17 soybeans). But any change in the supply will result in further gains, and at this point there continues to be some weather adversity in the U.S., South America, and India. With that being said, it’s unlikely the rally is over, just taking a break.

Weather continues to help support the wheat complex. It seems odd that with export demand as poor as it is in wheat, that this market can continue to push higher. Wheat’s issues are primarily focused on the U.S., the Black Sea region, Canada, China, and India. Production concerns in those areas have resulted in the biggest push as cold, wet conditions continue to keep planters out of the fields in the northern Plains and Canada. Hot and dry conditions in the southern Plains are reducing the potential size of the winter wheat crop. War is causing export issues in the Black Sea region, and hot and dry conditions are causing production loss in India. China was having issues earlier as reports had their wheat crop in the worst condition in history, but the past three weeks the crop has improved and now looking closer to normal.

Rain was in the forecast for the southern Plains last weekend and decent rains did fall in parts of the region, but the far southwestern corner of Kansas and western Oklahoma, along with Texas were misses. That continues to leave about 25% of the winter wheat crop is some stage of drought. Combine that with the likelihood of less spring wheat acres due to cold, wet conditions in the northern Plains, and you have the U.S. wheat production for 2022 taking a big hit, and the spring wheat crop taking a production hit two years in a row.

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The new news in the wheat market is coming out of India. India was expected to bridge the gap in wheat exports this year. With the Black Sea region virtually out of the picture for wheat exports (Ukraine anyway), India was reporting the potential for a record wheat crop and that they would be willing to dump more wheat on the world export market. That has all changed this week due to the recent run of hot and dry conditions. Recent estimates have the size of the crop declining, but more importantly, exports are expected to drop from early estimates calling for 10 million metric tons of exportable bushels to 5 million metric tons.

The grains were also supported by unconfirmed rumors of Chinese buying. Rumor has China is buying 1 million metric tons of U.S. corn. This would be the third such purchase in the past few months, which stands to reason with recent concerns about Brazil’s second corn crop. Dry conditions continue to expand in Brazil and currently 65% of the second corn crop is in some stage of drought. This will likely start to translate into lower production estimates.

The soybean complex continues to see support from soybean oil. Indonesia has implemented an all-out ban on palm oil exports and that along with the loss of the Black Sea regions sunflower exports has the world vegetable oil markets on high alert. This is helping to push both soybeans and canola (along with lower projected acreage in Canada). Soybean export demand has remained robust as well. New crop soybean exports are estimated at 400 million bushels, a 65% increase over last year at this time.

The Drought Monitor Map did show the drought shrink in North Dakota, South Dakota, Minnesota, and Iowa but increased in western U.S. states.

At the end of April, in a surprising announcement, the Biden Administration asked Congress for $33 billion in security, economic, and humanitarian aid for Ukraine. The request also had the following statement:

“An additional $500 million in domestic food production assistance will support the production of U.S. food crops that are experiencing a global shortage due to the war in Ukraine, for example, wheat and soybeans. Through higher loan rates and crop insurance incentives the request provides greater access to credit and lowers risk for farmers growing these food commodities, while lowering costs for American consumers.”

It is not completely clear what the administration is attempting to accomplish. It is not likely increasing the loan rate for crop will result in an increase in planted acreage, especially with the current cash price almost double the price of the proposed new loan rate. And it is also unlikely $10 would entice producers to double crop wheat and soybeans. A cash offer of $17 soybeans does a good job of convincing.

The May 2 Crop Progress report was as expected as it continued to show slow planting progress due to last week’s poor weather conditions. Last week North Dakota only had 0.5 days suitable for work while Minnesota had 1.1 days suitable for work.

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The Crop Progress report put national corn planting progress at 14% complete versus 33% last year and 2% below expectations. North Dakota and Minnesota have nothing planted while South Dakota is at 3%. Soybean planting progress was as expected at 8% versus 13% average. Again, North Dakota and Minnesota have 0% planted while South Dakota is at 1%.

Spring wheat planting progress was estimated at 19% complete versus 28% average. Spring wheat progress was 1% below expectations. North Dakota and Minnesota did get 1% planted last week while South Dakota producers advanced planting progress 8%. Most of the planting progress was reported in Idaho and Montana. Winter wheat conditions were left unchanged at 27% good/excellent.

Brazil’s second corn crop production is also starting to become a concern. Hot dry conditions are beginning to result in decreasing production estimates, as Dr Cordonnier lowered his estimate 5 million metric tons to 107 million metric tons. That is 9 million metric tons below USDA’s current estimate. With the forecast for this region, this appears to be the first of many revised lower production estimates. In Argentina, officials are reporting corn harvest at 36% compete and soybean harvest at 46% complete.

The other big news this week was the Fed announcement. Most were expecting the Federal Reserve to increase interest rates 0.5% but some were in the camp of a 0.75% hike. A 0.5% hike is worked into the market, while a .075% hike would pressure the stock market and could result in money to flow back into the commodity sector. The Fed only increased rates 0.5% and Powell made the comments that the Fed will likely never make a 0.75% change.

The big question for producers right now is, do I take prevented planting and plant a cover crop (and sell to livestock producers) or do I continue to look at planting the intended crop? Last planting date for some North Dakota crops is approaching fast (canola in southwest North Dakota is May 15, corn for most of the state is May 25). It’s possible that many producers will not be in the field until after the final plant date. For every day you plant after the final planting date you lose 1% of your coverage (for most crops). Some producers may not want to take the risk of potential yield loss and lower coverage.

Cattle continued to struggle the last week of April with most of the pressure coming from economic concerns. Cattle were able to overcome some of those concerns at the start of May with support not only coming from technical buying, but also from a strong cash trade. Cash bids traded between $144 and $146. Light support came from seasonal support as well as we are about to kick off the summer grilling season.

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Meteorlogist and commodity trading advisor Jim Roemer is the owner of Best Weather Inc., and co-founder of Climate Predict, a long-range global weather forecast tool.
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