Crop Analysis (VIP) -- February 6, 2014

February 6, 2014 08:43 AM
 

Corn

Price action:
Corn futures finished mostly 1 cent higher except for the nearby March contract, which finished 1/4 cents lower. March futures closed low range while deferred contracts saw mid-range closes.

Fundamental analysis: Corn futures opened day trading higher on news of strong export sales from USDA. USDA reported total sales of more than 1.7 MMT for 2013-14, which were well above expectations. USDA also reported taht China canceled 220,000 MT of old-crop corn buys, but the news was not unexpected.

Much of today's trading was mostly technical in nature as news was otherwise lacking. Traders trimmed early gains on profit taking but the ability of old resistance at $4.40 to become support saw traders moving back to the buy side, sending most contracts to a higher close.

Technical analysis: March corn futures probed the resistance area at the November highs just under $4.50 and slipped back. But the ability of old resistance at $4.40 to provide support is seen as a positive by traders. The next area of support, should futures penetrate $4.40, is only a nickel lower. The 13-day uptrend line remains in tact as well as the uptrend drawn off the January lows.

Hedgers: 60% sold in the cash market on 2013-crop. 20% of expected 2014-crop production is sold via cash forward contract sale for harvest delivery.

Cash-only marketers: 50% sold in the cash market on 2013-crop. 20% of expected 2014-crop production is sold via cash forward contract sale for harvest delivery.

 

Soybeans

Price action: Soybean futures saw another solid upside day of trade and ended 9 1/2 to 12 1/4 cents higher in old-crop futures, 7 3/4 cents higher in September and around 5 to 6 cents higher in new-crop. This was a mid- to high-range close.

Fundamental analysis: Soybean futures benefited from technical buying as well as confirmation of still-strong soy demand. Nearby contracts forged new highs for the year and appear headed for a test of the December highs. On the fundamental side of things, traders were encouraged by a strong weekly soybean export tally and the fact that China was the lead buyer of old-crop beans. Traders have been concerned China will cancel orders for U.S. beans as South American supplies come available. Weekly soymeal sales were also impressive.

Traders are also beginning to look ahead to Monday's Supply & Demand Report. Pre-report expectations are for USDA to lower its 2013-14 U.S. soybean ending stocks estimate by 7 million bu. from January to 143 million bushels. This would be just 2 million bu. above last year's total.

Technical analysis: March soybean futures traded through resistance at the January high of $13.30 1/2, but the contract then took back some of its gains and ended below that price. Another move through resistance would have bulls targeting the December triple top around $13.39. Tough support remains at $13.00.

Hedgers: 100% sold in the cash market on 2013-crop production. 10% of expected 2014-crop production is sold via cash forward contract sale for harvest delivery.

Cash-only marketers: 75% sold on 2013-crop production. 20% of expected 2014-crop production is sold via cash forward contract sale for harvest delivery.

 

Wheat

Price action: Wheat futures saw a highly choppy day of trade, with early gains giving way to fresh selling. SRW futures ended 6 to 7 cents lower, with HRW down 2 to 4 cents. March HRS futures closed 8 1/2 cents higher, while the rest of the market ended 3 1/2 to 7 cents lower.

Fundamental analysis: Early support came from a solid showing in the weekly export sales report, as sales of 638,800 MT for 2013-14 and 94,800 MT for 2014-15 met traders' expectations. HRS futures led early gains on news Japan has recently increased its purchases of U.S. wheat due to shipping delays in Canada. Futures were also supported by the spread of drought across the Central and Southern Plains, but futures were unable to sustain early gains and profit-taking set in.

The inability of the market to hold early gains signals much more news is needed to keep traders interested in buying wheat. Today's losses are also concerning given the ability of corn and soybean futures to end the day on the plus side of unchanged.

Technical analysis: September SRW wheat futures saw trade above yesterday's high and below yesterday's low, but narrowly avoided posting a bearish reversal. Today's high of $6.06 3/4 is initial resistance, with support in the $5.80 to $5.90 area all the way down to the contract low of $5.65 1/2.

Hedgers: 100% sold on 2013-crop in the cash market. 35% of expected 2014-crop production is sold via cash forward contract for harvest delivery.

Cash-only marketers: 75% sold on old-crop. 35% of expected 2014-crop production is sold via cash forward contract for harvest delivery.

 

Cotton

Price action: Nearby cotton futures gapped higher on the open. Though the market finished well off its highs, futures still posted decent gains for the day. March through October futures ended 56 to 84 points higher on the day, while deferred months posted gains of 23 to 29 points.

Fundamental analysis: While cotton export sales of 179,800 RB for 2013-14 and 35,600 RB were a marked pullback from recent strong weeks, this was expected since China was readying for its Lunar New Year celebration. Traders placed more attention on exports of 358,600 RB. This figure was up 48% from the prior four-week average and a marketing-year high.

Weakness in the U.S. dollar index along with strong gains in the soybean market added to the positive tone.

Technical analysis: March cotton futures gapped higher on the open, and at the end of the day this gap was narrowed but still open. The bottom of this gap at 85.72 cents is near-term support. The contract tested but failed to move through resistance at the Jan. 30 high of 86.81 cents, leaving it as bulls' initial target, after which resistance stands at the 2014 high of 88.43 cents.

Hedgers: 75% of 2013-crop is sold in the cash market. 25% of expected 2014-crop production is sold via cash forward contract for harvest delivery.

Cash-only marketers: 75% of 2013-crop is sold. 25% of expected 2014-crop production is forward sold for harvest delivery.

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