Crop Analysis -- July 13, 2012

July 13, 2012 01:39 PM
 

Corn

Price action: Corn futures saw two-sided trade today but rallied into the close to finish with gains of 3 to 9 cents. The July contract expired 15 1/4 cents lower today at $7.55 3/4.

5-day outlook: Volatile action in the corn market this week signals a top is likely near. Even though crop conditions are still deteriorating (USDA is expected to cut its crop condition rating again Monday), all rallies eventually come to an end as high prices destroy demand. The higher the market rallies now, the sharper the eventual decline is likely to be.

30-day outlook: USDA will release its first, survey-based national average yield estimate in August, as will your Pro Farmer editors following Crop Tour. At this time, the market will have a better idea of just what toll heat and dryness had on the crop and what the supply outlook will be. USDA has already slashed its yield projection to 146 bu. per acre, leaving many to wonder how low the yield peg will go.

90-day outlook: Once the supply situation is better known, focus will on making sure there are adequate stocks through the 2012-13 marketing year. High corn prices would not only trim export demand, but would also influence livestock production and ethanol demand.

Hedgers: 40% of expected 2012-crop production is covered in Dec. $6.50 put options for 31 1/2 cents. 35% cash forward sold on expected 2012-crop production -- 25% for harvest delivery; 10% for March 2013 delivery. 90% sold on old-crop in the cash market.

Cash-only marketers: 90% sold on old-crop. 35% forward priced on expected 2012-crop production -- 10% for harvest delivery; 10% for March 2013 delivery; and 15% for May 2013 delivery.

 

Soybeans

Price action: August through January soybean futures posted 20-plus-cent gains today, while March 2013 through August 2013 contracts posted gains in the teens. July futures expired 16 1/4 cents higher. Soybean futures finished with solid gains after a very volatile week of action.

5-day outlook: Weather will remain the focal point next week. Based on how futures closed out this week, traders don't believe crops will get much relief from rains in areas of the Corn Belt today or forecasts calling for more precip over the weekend. But the increased volatility at high prices is a warning sign the market may be close to a top.

30-day outlook: August is "make or break" time for the soybean crop. While the soybean crop has struggled mightily so far this year, a dramatic shift in the weather pattern would improve crop prospects and promptly end the strong rally.

90-day outlook: If the soybean crop continues to struggle, the market must find a price that slows use as projected 2012-13 ending stocks are tight. Once the demand destruction is seen, however, the market could fade quickly. All markets eventually top, which is the reason you can't get more bullish as prices rise.

Hedgers: 25% of expected 2012-crop production is covered in Nov. $14.00 put options for 42 3/8 cents. 50% of expected 2012-crop production is sold via cash forward contract for harvest delivery. 90% sold on old-crop in the cash market.

Cash-only marketers: 85% sold on old-crop. 50% sold on expected 2012- crop production via forward contract for harvest delivery.

 

Wheat

Price action: Wheat futures gave back much of today's earlier gains and finished only slightly higher at all three exchanges. For the week, wheat futures posted moderate to strong gains.

5-day outlook: The fundamental picture for the wheat market has improved modestly, but wheat needs the corn market to continue the current rally. If the corn market puts in a top and starts a downward correction, wheat will lose its primary support.

30-day outlook: Because long-term fundamentals aren't strong enough to support wheat and because the corn rally will eventually run out of steam, the price strength in the wheat market must be used as a selling opportunity. Hedgers should be prepared to finish 2012-crop cash sales and transfer all risk to the cash market for the remainder of the marketing year. All wheat producers should be prepared to make initial 2013-crop wheat sales.

90-day outlook: Unless there's a dramatic shift in weather, the winter wheat crop will be seeded into dry soils -- again. Unfortunately, the onset of El Nino and the improved weather associated with it is being delayed. But forecasters still see El Nino developing sometime over the next six months.

Hedgers: 75% cash sold on 2012-crop for harvest delivery. 100% sold on 2011-crop in the cash market.

Cash-only marketers: 75% of 2012-crop production is sold for harvest delivery. 100% sold on 2011-crop.

 

 

 

 

Cotton

Price action: Cotton futures enjoyed a strong, corrective bounce today to finish 240 to 273 points higher. The market ended with marginal gains week-over-week.

5-day outlook: Cotton futures benefited from China's second quarter GDP matching expectations today. But today's action is likely the extent of support from this, as the 7.6% growth still marks the slowest growth rate in three years. The slow start to monsoon rains in India and a lower U.S. 2012-13 production and export forecast is also already factored into prices. Until the market receives fresh news, it will remain range-bound.

30-day outlook: Much of the U.S. is in the grips of drought, which has caused cotton condition ratings to decline recently. If this trend continues, it would also help keep a floor under the cotton market.

90-day outlook: The market's upside will likely remain capped by the fact that global supplies are ample and the U.S. crop will be much improved over last year. The U.S. dollar will be key to the attractiveness of U.S. supplies on the global export market.

Hedgers: 100% sold on old-crop in the cash market. 50% priced on expected new-crop production via cash forward contract for harvest delivery.

Cash-only marketers:100% sold on old-crop. 50% priced on expected new-crop production via forward contract for harvest delivery.

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