Price action: To cap off a strong week of price gains, September corn posted an all-time high for a front-month contract as traders fear next week's extreme heat will further damage yield potential and there's not enough rain in the forecast to really make a difference.
5-day outlook: Many traders had an upside target of $8.00 as the drought was gaining momentum, as they recognize that price should (and has) slowed demand. That's not to say prices won't or can't continue to rally, as focus is turning to areas where traders had anticipated near-trendline yield potential, only to see a forecast for increased stress next week. As a result, focus will remain on the weather next week.
30-day outlook: There certainly are signs demand has slowed. Weekly ethanol production posted a new low since reporting began last week and a new marketing year low for weekly export sales for the current marketing year the week ended July 12. These numbers are further evidence of price rationing.
90-day outlook: USDA will release its first survey-based crop estimate Aug. 10 and the Pro Farmer Midwest Crop Tour beginning Aug. 20 will provide further insight as to the crop's size. Longer-term, the market will have to rebuild its demand base after demand destruction caused by this year's high prices.
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.
Price action: Soybean futures added to the strong price surge today as traders continue to actively build premium into the market amid drought-induced supply concerns.
5-day outlook: Forecasts call for extreme heat across the country's midsection next week, which will likely take another big bite out of the crop. Timing for severe crop stress couldn't be much worse with the crop flowering and setting pods. As a result, there's incentive for traders to build more premium into prices. But a corrective pullback can't be ruled out as the market is heavily overbought.
30-day outlook: Traders have been holding out hope for an improvement in weather conditions the second half of the growing season. But those hopes are fading as the government outlook calls for above-normal temps and below-normal precip to continue across the major production states during the August through October time frame.
90-day outlook: If U.S. soybean production is severely curbed due to drought as many expect, it means sharp cuts will be seen on the usage side of the balance sheet as 2012-13 carryover is projected to be down from the current marketing year at a tight 130 million bushels. Given there already isn't any growth in projected use, USDA will have to get creative with is usage categories.
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.
Price action: Wheat futures saw another choppy day of trade, but bulls again carried the market into the close. Chicago and Minneapolis wheat settled moderately higher, while Kansas City wheat saw lighter gains. Wheat surged sharply higher week-over-week.
5-day outlook: Wheat's action was tied to that of the corn market this week and more of the same can in the week ahead. The corn rally has shown signs of sputtering, then surged higher. This signals a top is likely near. When corn reverses course, so will wheat.
30-day outlook: U.S. wheat export prospects have recently improved thanks to crop concerns in areas of Europe, the Former Soviet Union, Australia and China. This will limit the market's downside, but wheat's upside is also limited as global stocks are nevertheless expected to be sufficient and the U.S. spring wheat crop is much improved over year-ago.
90-day outlook: The National Weather Service's Seasonal Drought Outlook through Oct. 31 signals hard red winter wheat will again be planted into dry soils in the Southern Plains, though producers will hold out on planting as long as possible in hopes of drought easing rains. This along with expectations for corn prices to remain at relatively high levels will limit downside risk for wheat.
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.
Price action: Cotton futures lacked fundamental direction and volume today so action was constrained to a narrow range. Futures ended steady to 65 points higher through the July 2013 contract and mixed in farther deferred months. This was near steady with last week's close.
5-day outlook: Cotton futures will likely remain range-bound next week as global supplies remain ample and export demand has remained consistently mediocre. Cotton crop condition ratings have been gradually declining, but the crop is still in much better shape than last year.
30-day outlook: Cotton will remain range-bound until either drought in the Southern U.S. causes significant cotton crop deterioration or global economic concerns heighten. Both of these events are quite plausible. Recent economic data from the U.S. and China has been worrisome and European fiscal troubles have merely shifted out of the limelight. A reawakening of global economic troubles could trim export demand. On the other hand, the National Weather Service's August forecast points to normal to above-normal temps and normal to below-normal precip.
90-day outlook: While recent U.S. economic data has disappointed and China's growth has slowed signs of slowing, expectations for both countries are that leaders will take action to spur these nation's economies if declines continue. This would boost demand for U.S. commodities, and such expectations act as a proverbial safety blanket until monetary easing occurs.
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.