Crops Analysis -- Advice (VIP) -- September 19, 2012

September 19, 2012 09:53 AM


Advice: Hedgers and cash-only marketers are advised to make a 25% sale to get to 60% sold in the cash market on 2012-crop production.

Price action: Corn futures finished 13 to 16 1/2 cents higher in the December through July contracts, which was near session highs. Far-deferred months were mostly 6 to 8 cents higher.

Fundamental analysis: Corn futures rebounded today amid ideas recent losses were overdone despite heavy pressure on crude oil futures. In addition to short-covering, there was some bargain buying, with some of that tied to strength in Gulf basis. Commercials were noted buyers on the day.

Funds, who have been active sellers recently, were net buyers instead today, purchasing an estimated 11,000 contracts (55 million bu.).

Technical analysis: The push above $7.45 1/2 after closing below it yesterday signals a potential bear trap for December corn futures. But the downtrend from the late-August high remains intact. That trendline intersects at $7.82 1/2 tomorrow and must be cleared to signal a short-term low.

Hedgers: * NEW ADVICE * Make a 25% cash sale to get to 60% sold on 2012-crop in the cash market -- 50% for harvest delivery; 10% for March 2013 delivery. Also, 40% of expected 2012-crop production is covered in Dec. $6.50 put options for 31 1/2 cents.

Cash-only marketers: * NEW ADVICE * Make a 25% sale to get to 60% sold on 2012-crop production -- 35% for harvest delivery; 10% for March 2013 delivery; and 15% for May 2013 delivery.




Advice: Hedgers are advised to make a 50% cash sale to get to 100% sold on 2012-crop in the cash market. Cash-only marketers are advised to make a 25% sale to get to 75% sold.

Price action: Soybean futures extended gains around midday and posted a high-range close to finish 20 3/4 to 30 cents higher. Soymeal and soyoil saw strong spillover support.

Fundamental analysis: Ideas recent losses were overdone spurred short-covering overnight and traders extended gains as the dollar weakened this morning as they digested the move by the Bank of Japan to provide more stimulus for its economy.

However, there is some nervousness in the market about overnight news from China, as the county is set to release a barrage of economic data that investors expect will show its economy has slowed. There is also market chatter that China is planning to reduce its soybean reserves significantly to fight food inflation -- which suggests reduced demand via imports.

Technical analysis: November soybean futures saw trade above yesterday's high of $16.69 and closed just above it. Support lies at yesterday's low of $16.30 1/2. A return above the July high of $16.91 1/2 would suggest the move below it was a bear trap.

Hedgers: * NEW ADVICE * Make a 50% cash sale to get to 100% sold on 2012-crop in the cash market for harvest delivery. The Nov. $14.00 put options which were purchased for 42 3/8 cents are currently virtually worthless. Hold them as a crop insurance hedge.

Cash-only marketers: * NEW ADVICE * Make a 25% sale to get to 75% sold on 2012-crop production for harvest delivery.




Price action: Wheat futures assumed more of a leadership role today. The market rallied into the close to end with gains in the upper teens to low 20s in most contracts at all three locations.

Fundamental analysis: Wheat futures enjoyed corrective short-covering today on ideas the downside has been overdone and from help of friendly outside markets. Strong gains in the soybean market also provided spillover support.

Adding incentive for market participants to add long positions is tightening global wheat stocks prospects. Exports from the Black Sea region are expected to slow in the months ahead as production estimates continue to decline and the first half of the year saw a very aggressive export pace. Iraq's purchase of 150,000 metric tons of Russian wheat for November delivery was a reminder of that. Dryness in Australia and the U.S. Plains is also worrisome.

Technical analysis: December Chicago wheat posted an inside day of trade, but the high-range close will give the bulls the upper hand in overnight trade. Their initial target is the psychological $9.00 mark, after which resistance is layered from last week's high of $9.31 to the August high of $9.45 1/2. Strong support is at the August low of $8.57 1/4.

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 saw another quiet day of trade and ended 10 points lower in the October contract and 23 to 39 points higher in all other months.

Fundamental analysis: Most contracts favored the upside today thanks to friendly outside markets and spillover support from the grain and soy markets. Commodities enjoyed corrective short-covering today and general investor risk appetite improved due to news Japan's central bank moved to stimulate its economy and supportive U.S. housing data.

News China will not issue any more cotton import quotas for 2012 to support domestic cotton prices limited buying interest, however. Gains will likely remain limited ahead of the release of what is expected to be weak Chinese economic data to be released overnight. This plus reports the country is more concerned about fighting inflation than the slowing economy could weigh on cotton.

Technical analysis: December cotton futures ended near the top of their recent consolidation range, the boundaries of which are the August high and low of 77.49 cents and 70.21 cents, respectively. Near-term support is at last week's low of 72.75 cents.

Hedgers: 50% priced on expected 2012-crop production via cash forward contract for harvest delivery.

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


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