Crop Analysis (VIP) -- December 19, 2013

December 19, 2013 08:13 AM
 

 

Corn

Price action:
Corn futures finished 3 1/2 to 5 1/2 cents higher through the July 2015 contract today, which was high-range.

Fundamental outlook: Corn futures got a boost from a stronger-than-expected weekly export sales report. Sales of 827,100 MT for 2013-14 and 45,200 MT for 2014-15 were above expectations and included purchases by China, which signals the country still has an appetite for U.S. corn despite ongoing issues with unapproved GMO material in some shipments. In addition this morning, USDA announced daily sales of 130,000 MT to South Korea for 2013-14 and a sale of 127,536 MT to an unknown destination (111,280 MT for 2013-14 and 16,256 MT for 2014-15).

In addition to the friendly demand news, corn futures were supported by short-covering today as traders start to square positions ahead of the holidays. Funds were net buyers of 5,000 contracts (25 million bu.) today.

Corrective gains in corn may have been bigger today if not for strength in the U.S. dollar index, which is firmer in reaction to the Fed's decision to start tapering its monthly bond purchases in January. Sustained strength in the dollar would make it hard for corn to put in a post-harvest low.

Technical outlook: Corn futures still have their work cut out in order to signal near-term lows have been posted. The March contract needs closes above the November high of $4.49 1/2 to spark active chart-based buying. Support lies at the contract low of $4.18 1/2 that was posted earlier this month.

Hedgers: 25% of 2013-crop production is sold via cash forward contract for harvest delivery.

Cash-only marketers: 25% of expected 2013-crop production is sold via forward contract for harvest delivery.

 

Soybeans

Price action: Soybean futures rebounded from earlier weakness to close 3 to 6 3/4 cents higher and high-range for the day. Funds bought 5,000 contracts (25 millon bu.) today.

Fundamental outlook: Futures were initially pressured by this morning's weekly sales report that showed sales of just 415,500 MT for 2013-14 -- a new marketing-year low. Sales of 80,200 MT for 2014-15 were not strong enough to lift the combined tally within expectations. The weekly report also stated an unknown destination canceled 576,300 MT of 2013-14 soybean purchases, which traders believe is China.

Buying was also limited early by news China reported another case of the H7N9 strain of bird flu in the Guangdong province, bringing the total number of cases to four since Sunday. Traders fear it will slow Chinese feed demand, depending on the source of the outbreak.

The late strengthening in soybean futures signals the downside is limited to profit-taking for now. Funds aren't currently interested in actively trimming their big net short position.

Technical outlook: January soybean futures spent the day pivoting around yesterday's low of $13.23 1/4 and finished just above it. Today's low of $13.15 3/4 is initial support, with resistance at the December high of $13.53 1/2.

Hedgers: Get to 100% sold in the cash market on 2013-crop production. We'll manage risk on the board the remainder of the marketing year.

Cash-only marketers: Get to 75% sold on 2013-crop production.

 

Wheat

Price action: Wheat futures traded higher through much of the morning but slumped in late trading to close 1 to 2 cents lower in SRW wheat futures. HRW wheat futures finished 1 to 4 cents lower and HRW futures closed down 1/2 to 2 1/2 cents. Funds sold 3,000 contracts (15 million bu.) today.

Fundamental outlook: Wheat futures were lifted by much-overdue short-covering, although gains were limited by sharp strength in the U.S. dollar index. Adding to early price support was the weekly export sales data, which showed sales of 656,100 MT for 2013-14 and sales of 3,000 MT for 2014-15. The tally came in above expectations, which signals U.S. prices are once again competitive on the global market. But strength in the dollar raises concern this boost in demand will be short lived.

Futures turned lower on news Argentina's Agriculture Ministry pegged its 2013-14 wheat crop at 9 MMT, up from its previous forecast of 8.5 MMT. The Argentine government also raised its planted acreage forecast by 31,000 hectares to 3.65 million hectares (8.9 million acres).

All wheat favors are overdue for a corrective bounce as futures are oversold according to the Relative Strength Index. But funds are comfortable with their large net short position.

Technical outlook: March SRW wheat posted another contract low of $6.10 1/4, but also saw trade above yesterday's high. The contract could not pull off a bullish reversal and ended closer to session lows. Psychological support is at $6.00.

Hedgers: 75% sold on 2013-crop in the cash market. No 2014-crop sales are advised.

Cash-only marketers: 50% sold on 2013-crop. No 2014-crop sales are advised at this time.

 

Cotton

Price action: Cotton futures failed to stray too far from unchanged today and finished steady to 31 points higher.

Fundamental outlook: Another week of stronger-than-expected export sales mildly supported cotton futures today. Cotton sales of 236,000 running bales were stronger than the previous week. Traders are concerned, however, that recent price strength could slow export demand, especially during the holidays when export activity normally declines anyway.

The stronger-than-expected weekly export sales were enough to offset pressure from a firmer dollar, which was up in response to the Fed announcing its taper plans yesterday. The combination of a firmer dollar and rising cotton prices is a legitimate threat to export demand.

Technical outlook: Following the big push up the past couple weeks, March cotton futures are pausing this week. If the contract avoids a poor close tomorrow, that would signal another push to the upside is likely. Next resistance is at 85.47 cents, while support is at 81.64 cents.

Hedgers: 50% of expected 2013-crop is sold in the cash market.

Cash-only marketers: 50% sold on 2013-crop production.

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