Rose on Grain – War in Ukraine and Acreage Competition Pushing CME Grains Higher

February 28, 2022 6:39 pm
Published by

Louis W. Rose IV

Corn:

CME May corn futures gained 3 cents last week to finish at 655¾.  We did not recommend trading any bias ahead of the USDA’s annual Ag Outlook Forum.  Corn futures have begun the new week notably higher.

The corn market finished slightly higher on the Russian invasion of Ukraine, lower expected South American safrinha production, strengthening US export data, and lower expected domestic acreage Vs 2021.  Even though the weekly gain was slight, corn spent most of the week much higher, with May trading, at times, above 700.

Domestically, trader attentions remain split between 2022 acreage, domestic offtake (per increases in energy, particularly crude oil, prices), and the military conflict in Ukraine.  Planting and emergence have already occurred across portions of Texas, with planting likely to begin as soon as weather permits across the mid- and southern Mississippi River Delta; drought concerns across this area were mitigated by heavy rains last week.  Current prices keep corn competitive with cotton for southern acreage.  USDA projected, 2022 planted area at 92M acres, just above the pre-report consensus and 1.4M lower Vs 2021.

Net export sales and shipments were higher Vs the previous sales period at approximately 41M and 74M bu, respectively.  Sales and shipments were ahead of the pace required to meet the USDA’s latest projection.  The US is 77% committed and 39% shipped Vs the USDA’s target.  Sales are well ahead the average expected pace for this point of the season; shipments are significantly off their expected pace.

Internationally, the war in Ukraine is fueling the corn market, with Ukraine being a major exporter of corn.  Additionally, Russia is an OPEC nation and higher crude prices are likely to enhance domestic demand for corn.  Official production estimates from South America continue to move lower as weather concerns have returned.

CFTC Commitments of Traders data for the week Feb 22 (futures only) showed that the trade increased its net short position Vs the previous assay period to approximately 3.6B bu while large specs modestly increased their net long to around 1.72B bu.  

For an in-depth analysis of CFTC data see our weekly COT analysis and commentary.

For this week, the weekly technical analysis for and money flow into the May contract remain bullish, with the market remaining overbought.  Export data, forerunning of the USDA’s Mar WASDE report (Mar 9), and geopolitical concerns seem likely to be major market moving factors for corn, wheat, and beans over the near-term.

Soybeans:

CME May soybeans lost 19 cents last week to finish at 1584½.  All bean contracts have commenced the new week notably higher.

CME soybeans finished lower, on higher projected planted area (USDA) Vs 2021 but spent most of the week higher on the same factors that affected the corn market.  The May contact traded as high as nearly 1760

Domestically, as with corn, current prices keep beans competitive with cotton for southern acreage.  Continued strength in both cotton and corn seem likely to be supportive for CME soybeans over the near-term.  Planting season for southernmost US areas is just around the corner.  USDA projected 2022 planted area at 88M acres, which is 800K higher Vs 2021, but well below pre-report expectations of around 89.5M acres.

Net export sales were lower while shipments were higher Vs the previous assay period at approximately 45M and 46M bu, respectively.  Sales and shipments were again well ahead of the pace required to meet the USDA’s latest projection.  The US is 88% committed and 72% shipped Vs the USDA’s target.  Sales are notably ahead the average expected pace for this point of the season; shipments also remain ahead of the expected pace.

Internationally, private estimates from across South America continue to show an expectation for a smaller than originally expected crop.  The war in Ukraine, will likely continue to be supportive for the soybean market as it needs to compete with corn for 2022 acreage.

CFTC Commitments of Traders data for the week ending Feb 22 (futures only) showed that the trade increased its aggregate net short position to approximately 1.68B bu while large specs reduced their net long to around 857M bu.

For this week, the weekly technical analysis for and money flow into the May contract remain bullish, with the market remaining overbought territory.

CME Wheat:

CME SRW Mar futures gained 55¾ cents last week at 859¾.  Chicago (and KC) wheat has commenced the new week notably higher.

CME futures finished notably higher on the Russian invasion of Ukraine, a continuation of droughty conditions across the southern Great Plains, and strengthening US export data.

Domestically, dryness across much of the Great Plains continues to cause concern for 2022 production, with several local analysts now predicting much of the HRW crop is likely to eventually be destroyed and acreage rolled into cotton and grain sorghum.

Net export sales and shipments were higher Vs the previous assay period at approximately 19M and 20M bu, respectively.  Both sales and shipments were ahead of the average weekly pace required to meet the USDA’s official target.  The US is 82% committed and 63% shipped Vs the USDA’s target.  Sales are modestly ahead of the average long-term pace for this point of the season while shipments are significantly off their expected pace.  SRW sales were much better at approximately 2.5M bu.

Internationally, with Russia having invaded Ukraine, the market has understandably exploded given the amount of wheat produced and exported out of the Black Sea Region.  It certainly looks as if Putin is “all in” with his plans to overtake Ukraine and such seems likely to continue to force short covering in CME futures.

CFTC Commitments of Traders data for the week ending Feb 22 (futures only) showed that the trade reduced its aggregate net short position to approximately 413M bu while large specs slashed their aggregate net short to around 98M bu.

For this week, the weekly technical analysis for and money flow into the May contract are bullish, with the market much overbought.  The 800 level was recently a major point of contention; now it is 1000, or possibly higher.

Have a great week!

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    This post was written by Louis Rose