Crop Analysis (VIP) -- November 7, 2012

November 7, 2012 08:53 AM



Price action: After a choppy day of trade, corn futures firmed late to end with modest gains of 2 to 4 cents in most contracts, which was near the middle of today's range.

Fundamental analysis: Corn futures stood tall in the face of heavy spillover pressure from outside markets and a general risk-off attitude across the investment world. Most of corn's support came on spillover from the wheat market.

But corn was also supported by crop concerns in Argentina. Very wet soils across the country's main grain belt continue to severely delay planting efforts. As a result, the head of Argentina's corn producers association, Maizar, says production potential has been cut by 1 MMT to 2 MMT. His estimate at 26 MMT to 27 MMT is still higher than many, including Pro Farmer South American crop consultant Dr. Michael Cordonnier who shaved 3.5 off his forecast this week, lowering it to 22.5 MMT.

Technical analysis: December corn futures are showing no willingness to even test the boundaries of the extended, choppy range from the September low of $7.05 to the October high at $7.76. The longer the contract stays in this range, the more explosive the eventual breakout -- to the upside or downside -- is likely to be.

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.



Price action: Soybean futures ended mid-range, with November through July futures ending 4 to 8 cents lower. Far-deferred futures ended mixed.

Fundamental analysis: Strength in the U.S. dollar index and sharp weakness in the stock market resulted in a risk-off day of trade in the commodity markets. Additional pressure came from forecasts for rains across the driest areas of central and eastern Brazil (the northern soybean production areas), which will propel planting and emergence of the crop.

Based on this week's price trend, futures will be firmer tomorrow as the back-and-forth trade continues ahead of USDA's November crop reports. Traders look for USDA to raise the size of the soybean crop slightly from last month and for 2012-13 carryover to climb by 3 million bu. to a still-tight 133 million bushels. Traders will also have weekly export sales data to factor into prices tomorrow morning.

Technical analysis: January soybean futures briefly traded below the psychological $15.00 level, but closed above it. If support at the October low of $14.84 is violated it would open fresh downside risk for bears. A move above the Oct. 24 high of $15.77 would open fresh upside potential for the contract. That wide band is the key near-term trading boundaries.

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.



Price action: Wheat futures favored a firmer tone throughout the day on concerns about the global wheat crop. Chicago wheat ended 9 1/4 to 17 1/4 cents higher, with Kansas City mostly 7 to 12 3/4 cents higher. Minneapolis ended mostly 7 to 12 1/4 cents higher.

Fundamental analysis: Wheat benefited from a combination of global crop concerns and technical-based buying. With little to no rain in the forecast for the Central and Southern Plains, traders expect the condition of the HRW wheat crop to continue declining. Early gains were trimmed by negative outside markets, but as the day progressed, traders shrugged off strength in the U.S. dollar index and focused more on fundamentals. That's impressive given the broad risk-off attitude in the investment world today.

Traders will be putting their finishing touches on positions tomorrow ahead of USDA's November Supply & Demand Report Friday morning. Traders look for USDA to trim 2012-13 carryover by around 12 million bu. from last month to 666 million bushels.

Technical analysis: December lean hog futures posted an upside day of trade on the daily chart. The contract penetrated resistance at the Oct. 24 high of $8.95, but closed beneath it. Closes above that level would have bulls targeting the top of the downtrending channel, which intersects near $9.10 tomorrow.

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

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



Price action: Cotton futures closed 3 to 27 points lower following a quiet, choppy day of trade. That was near session lows.

Fundamental analysis: Cotton futures held up well in the face of heavy pressure from outside markets. The "risk-off" attitude that influenced many markets today had a limited impact on cotton futures as traders showed no interest in adding positions to either side of the market ahead of Friday morning's USDA reports. Pre-report positioning is likely to keep price action light and choppy again Thursday.

Technical analysis: The technical posture is bearish for December cotton futures as the contract is pausing around old support at 70.22 cents. Support is layered from the July low at 69.40 cents to the contract low at 64.61 cents.

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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