Crop Analysis (VIP) -- November 16, 2012

November 16, 2012 08:32 AM
 

Corn

Price action: Corn futures firmed on news the EPA had rejected the ethanol waiver request on the Renewable Fuels Standard, but corn futures still finished lower compared to last week's close. On the bright side, corn futures avoided doing serious technical chart damage this week as nearby contracts respected key support at the September lows.

5-day outlook: Corn needs more consistent demand news to keep market bulls interested. While some fill-in buying is being reported due to congestion at Brazil's ports, the pace of corn sales remains below what's needed to reach USDA's export projection. Traders will also keep a close eye on outside markets next week, as strength in the U.S. dollar index creates a "risk-off" trading atmosphere for the commodity markets.

30-day outlook: Many traders like to take an extended vacation from the markets between Thanksgiving and the start of the new year. As a result, the "holiday doldrums" could create a more volatile environment for futures due to thin-volume trade.

90-day outlook: This week's extended weather outlook for the National Weather Service signals the dry soil moisture profile across the western Corn Belt and portions of the eastern
Belt will continue through the winter. That puts a lot of pressure on Mother Nature to correct the soil moisture deficits next spring. Weather will take on more prominence as the calendar flips to 2013 and the battle for acres intensifies.

Hedgers: 100% sold on 2012-crop in the cash market -- 90% for harvest delivery; 10% for March 2013 delivery. Also, Dec. $6.50 put options, which were purchased on 40% of 2012-crop for 31 1/2 cents, are held as a crop insurance hedge.

Cash-only marketers: 75% sold on 2012-crop -- 50% for harvest delivery; 10% for March 2013 delivery; and 15% for May 2013 delivery.

 

Soybeans

Price action: Soybean futures did serious technical chart damage this week as futures started the week under sharp pressure and extended losses into today's close. January beans completed a 75% retracement of the rally from the June low to the September high today, although closed just above this key level. If violated early next week, bears' next target will be the June lows.

5-day outlook: A combination of strength in the U.S. dollar index on heightened economic
concerns, improved South American weather and news China canceled 600,000 MT of
U.S. soybean sales triggered followthrough selling in soybean futures this week. Traders will be focused on evening positions next week as they move to the sidelines for Thanksgiving, especially since many traders will take extended holidays until the start of 2013.

30-day outlook: The "risk-off" stance in outside markets points to increased price volatility through the end of the year. But if China returns to actively book soybeans, traders should be quick to respond to find a price that slows demand given the tight stocks situation.

90-day outlook: Areas of South America are still in need of rains to erase drought conditions, but the outlook has improved as traders currently expect record production in 2013 from Brazil and Argentina. If realized, it would take some of the pressure off the market to bid for 2013 U.S. soybean acres.

Hedgers: 100% sold on 2012-crop in the cash market. No futures/options positions at this time. No 2013-crop sales advised yet.

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

 

Wheat

Price action: Bears had the advantage most of the day in the wheat market and into the close with most contracts ending 4 to 8 cents lower for the day. For the week, Chicago wheat ended sharply lower and near the bottom of the market's downtrending range.

5-day outlook: On Monday traders expect USDA's Crop Condition Report will show ongoing deterioration to the winter wheat crop, which should limit downside risk for the wheat market to the bottom of its downtrending channel, which the Chicago wheat market tested today. Otherwise, look for a quiet week of trade ahead of the holiday.

30-day outlook: Ukraine is expected to halt wheat exports on Dec. 1 and Russia is expected to take similar action soon as supplies are dwindling. This should improve demand for U.S. wheat, though the timeline for any such improvement is far from certain.

90-day outlook: Attention will be on the soils of the U.S. Southern and Central Plains. This region is again in the grips of a drought, which has the winter wheat crop off to an already poor start. And according to the Climate Prediction Center's three-month outlook, drought is likely to persist. This plus tight corn supplies means the path of least resistance for wheat is likely up.

Hedgers: 75% cash sold on 2012-crop in the cash market.

Cash-only marketers: 75% of 2012-crop production is sold.

 

Cotton

Price action: Cotton futures capped off the week with strong gains in all but the December contract. March cotton futures ended the week more than 200 points above last week's close.

5-day outlook: Cotton futures were supported this week by signals of strong demand. This was confirmed this morning by weekly export sales data that showed cotton sales of 370,100 RB for 2012-13 -- coming in 39% above the previous week. Traders expect sales to remain strong for a few more weeks before tapering off when new-crop Chinese supplies become available.

30-day outlook: Besides demand, traders will be keeping a close eye on outside markets, which typically take on a more prominent role this time of year as the "holiday doldrums" set in. Concerns about the U.S. fiscal cliff and the double-digit euro-zone recession have strengthened the U.S. dollar to create a risk-off attitude in the investment world. If the dollar continues to climb, it will make U.S. commodities less attractive on the global market.

90-day outlook: Cotton has an uphill battle in bidding acres away from more competitively priced soybeans. As a result, expectations are for U.S. cotton acres to shrink in 2013 unless cotton prices rise.

Hedgers: 50% priced on expected 2012-crop production via cash forward contract for harvest delivery. A breakout from that range is needed to spark a trending move.

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

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