Crop Analysis (VIP) -- January 29, 2014

January 29, 2014 08:43 AM
 

Corn

Price action:
Corn futures ended 3 to 4 cents lower on the day, which was near session lows.

Fundamental analysis: Mild strength in the U.S. dollar index pressured the corn market overnight and early this morning, but even after the greenback faded, bears maintained control in the corn market. While prices are in the process of rebuilding demand, supplies are plentiful, which limits buying to short-covering.

Spillover from the soybean and wheat markets was the biggest source of pressure, as those markets posted double-digit losses. Traders will be closely watching tomorrow morning's weekly export sales data, which will likely direct early trade. This week's improvement in Gulf basis is positive for next week's report, as it signals demand has further improved.

Technical analysis: March corn futures erased the previous two days of price gains on today's downside day of trade. Near-term boundaries are support at last week's low of $4.21 and resistance at the January high of $4.35 1/2. Contract-low support is at $4.06 1/4. The contract needs to clear the $4.50 area to spark an extended upside correction.

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 closed 11 to 16 1/4 cents lower through the September contract, with March beans leading the decline. New-crop contracts finished around 6 to 7 cents lower. All contracts ended near session lows.

Fundamental analysis: Soybean futures were pressured today by rumors of Chinese cancellations of U.S. soybean purchases. Trade reports put the cancellations at 300,000 MT to 400,000 MT, though nothing has been confirmed. With nearly 7.357 MMT of outstanding soybean sales on the books to China for 2013-14 and South America moving closer to realizing a record crop, some Chinese cancellations would be a surprise to no one. Still, even the talk of this happening is price-negative. Therefore, there's risk of additional cancellation talk and near-term price pressure.

Weaker soybean basis for barges heading to the Gulf contributed to the Chinese cancellation talk today. If river basis continues to weaken, it would signal exporters have a plentiful supply of soybeans at the Gulf.

Funds were net sellers of 7,000 contracts (35 million bu.) of soybeans today as they have started to gradually peel back some of their net long position.

Technical analysis: Key near-term support for March beans is at the Jan. 2 low of $12.62 1/2. Violation of that level would point the contract toward the November low at $12.33 1/4. But a bounce from the current January low could spark short-covering.

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 fell to 3-1/2 year lows today as traders' focus was on ample global crop supplies and spillover from pressure as it built in the corn and soybean markets. SRW wheat ended 14 to 17 1/2 cents lower, with HRW down 13 1/4 to 16 3/4 cents and HRS down 7 to 9 1/4 cents.

Fundamental analysis: Wheat futures opened lower on a combination of factors, but as soybean futures sharply extended losses, all wheat flavors followed suit. Much of the pressure was tied to traders reducing risk ahead of this afternoon's Federal Reserve announcement, in which it said it would further taper its asset purchases (see "Evening Report" for more). Uncertainty surrounding this situation had traders worried about how the dollar would react to such news.

Traders remain concerned about the impacts multiple freeze events had on the winter wheat crop this winter, but traders aren't overly concerned about the crop as it went into dormancy in much better shape than last year.

Technical analysis: March SRW wheat futures posted a big downside day of trade on the daily chart and posted a contract low of $5.50 1/2. Next key support comes from the weekly continuation chart at the 2010 low of $4.25 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 surged today, but the market backed well off its highs ahead of the close. Nevertheless, March through July futures posted strong gains of 120 to 139 points. October cotton closed 18 points higher while deferred months finished 7 to 27 points lower.

Fundamental analysis: Cotton futures saw some bull spreading activity today, as well as some corrective short-covering in nearbys as traders reduced risk ahead of what is typically a quiet news time -- the Chinese New Year celebration. The market also benefited on ideas the downside has been overdone and from optimism about near-term contract's ability to respect uptrending support.

The market has recently been pressured by China's plans to end its cotton stockpiling program soon in favor of direct farmer subsidies. Ideas the country's massive stockpiles could result in China issuing fewer import quotas this year have caused mills to hold off on orders. But on the other hand, the new subsidy-based program is expected to result in fewer cotton acres in China. Thus, traders engaged in some corrective short-covering today.

Technical analysis: March cotton futures again tested but respected support at 84.00 cents today, marking it as a tough level of support. Resistance is layered from the October high of 87.62 cents to 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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