Crops Analysis -- July 27, 2012

July 27, 2012 10:45 AM
 

Corn

Price action: Corn futures closed 5 to 17 1/4 cents higher, which was near today's highs. But corn futures posted weekly losses for the first time since the weather-induced price rally started in mid-June.

5-day outlook: Scattered rains are in the forecast for the weekend and early next week. But after the prolonged drought pressure, rains now are too late to help the crop. At most, they will stabilize the crop in some areas and allow it to hold onto remaining yield potential. In areas where rains are not received, conditions will continue to rapidly deteriorate.

30-day outlook: While the supply side of the market remains bullish, high prices are starting to weaken demand. Export demand is slowing, ethanol production continues to decline and feed users are turning to alternative sources or looking to import corn. Demand destruction makes it possible corn prices could fall even as crop losses mount.

90-day outlook: Supply-scare rallies typically have long tails, meaning it takes a long time to recover lost demand due to higher prices. But the eventual break (potentially a sharp break) in prices this year, may be met with increased end-user buying more quickly than normal, especially if there is no change in the Renewable Fuels Standard (RFS). And we are picking up no indications EPA will lower the RFS.

Hedgers: 100% sold on 2011-crop in the cash market. 40% of expected 2012-crop production is covered in Dec. $6.50 put options for 31 1/2 cents. 35% cash forward sold on expected 2012-crop production -- 25% for harvest delivery; 10% for March 2013 delivery.

Cash-only marketers: 100% sold on 2011-crop. 35% forward priced on expected 2012-crop production -- 10% for harvest delivery; 10% for March 2013 delivery; and 15% for May 2013 delivery.

 

Soybeans

Price action: Soybean futures ended high-range with gains in the upper 20s to 30s in most contracts. Soymeal and soyoil enjoyed spillover support. Soybeans did, however, post their first week-over-week decline since mid-June.

5-day outlook: Soybeans are currently in their key flowering and pod setting/filling stage. This will keep traders squarely focused on weather. While there are rains in the near-term forecast, they are expected to be spotty and light. Also, heat is expected to rebuild next week after a brief break in temps, which could cause further yield deterioration.

30-day outlook: Recent export sales and export inspections reports signal historically high prices have yet to slow use. Traders must find a price that rations supplies, especially if this year's crop prospects continue to dwindle.

90-day outlook: Once there's a good handle on the size of the U.S. bean crop, traders will shift their attention to the South American growing season. Most expect a strong rebound in the South American bean crop to offset some of the shortfall created by the drought-reduced US crop, but logistical troubles could prevent fertilizer from reaching key growing areas in a timely fashion. Still, South American soybean acreage will increase and more-normal weather would point to a much bigger crop than in 2011-12.

Hedgers: 100% sold on old-crop in the cash market. 25% of expected 2012-crop production is covered in Nov. $14.00 put options for 42 3/8 cents. 50% of expected 2012-crop production is sold via cash forward contract for harvest delivery.

Cash-only marketers: 100% sold on old-crop. 50% sold on expected 2012-crop production for harvest delivery.

 

Wheat

Price action: Wheat futures closed roughly 12 to 19 cents higher in Chicago, 14 to 16 cents higher in Kansas City and mostly 4 to 15 cents higher in Minneapolis. For the week, wheat futures ended lower as wheat continued to follow corn.

5-day outlook: Wheat futures will very likely remain in a follower's role to corn next week. If corn traders are focused on deteriorating crop conditions and yield prospects, wheat will rebound from this week's losses. If focus in the corn market is on demand destruction, wheat futures are likely to extend this week's corrective declines after the strong rally.

30-day outlook: Wheat fundamentals have improved thanks to declining global crop prospects, but not to the point where wheat is able to rally on its own. That could change if Russia decides to ban grain exports, as rumored. Russian officials are scheduled to meet concerning the grain situation on Aug. 8.

90-day outlook: While global wheat supplies are still plentiful (although declining), high-quality stocks are relatively tight. That's good news for the U.S. on the demand front because the spring wheat crop is expected to be high-yielding and of high quality.

Hedgers: 75% cash sold on 2012-crop for harvest delivery. 100% sold on 2011-crop in the cash market.

Cash-only marketers: 75% of 2012-crop production is sold for harvest delivery. 100% sold on 2011-crop.

 

Cotton

Price action: Cotton futures settled low-range and narrowly mixed. The market ended with slight losses for the week but within the bounds of their month-plus consolidation range.

5-day outlook: In contrast to the corn, bean and wheat crops, cotton crop conditions are better than year-ago and actually improved in the USDA's last update. Demand has also remained consistent if not impressive. Considering this, cotton futures will likely continue to chop in their extended, sideways range next week.

30-day outlook: An eventual move higher could be ahead for cotton if monsoon rains continue to disappoint in India. The country has turned from exporter to importer in June, which tightens global supplies and points to less competition for the U.S. cotton.

90-day outlook: In light of less burdensome global stocks, traders will place more attention on how the crop finishes. The Climate Prediction Center's latest Seasonal Drought Outlook calls for drought conditions to persist or intensify for a good portion of cotton country through the end of October.

Hedgers: 100% sold on old-crop in the cash market. 50% priced on expected new-crop production via cash forward contract for harvest delivery.

Cash-only marketers:100% sold on old-crop. 50% priced on expected new-crop production via forward contract for harvest delivery.
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