Crops Analysis (VIP) -- April 5, 2013

April 5, 2013 09:49 AM
 

Corn

Price action: Corn futures did not stray far from unchanged today and bears had the advantage most of the day. Old -crop contracts ended around a penny lower while new-crop futures posted losses around 2 to 5 cents. The market posted sharp losses for the week.

5-day outlook: Corn futures will likely see more price discovery next week and beyond until there are signs prices have dipped low enough to bring end-users back to the market. Recent heavy fund liquidation must also ease before the corn market finds a bottom.

30-day outlook: There have been some signs of end-users taking advantage of the price break to book supplies, but others will wait until there are signs of a bottom before booking needs. This means there is likely some more downside for old-crop corn futures. Action in new-crop corn will be dictated by the weather. If the cold and wet forecast plays out, this would delay planting in major production regions.

90-day outlook: Attention will be squarely on the growing season, and the lower prices drop now, the greater the likelihood of a weather rally at some point in the growing season. With much of the western Corn Belt in drought, timely rains are needed. Weather patterns have yet to give a clear signal as to whether an El Nino or La Nina system is taking hold, meaning production prospects are very much up in the air.

Hedgers: 100% sold on 2012-crop in the cash market. 10% of expected 2013-crop production is sold via cash forward contract for harvest delivery.

Cash-only marketers: 75% sold on 2012-crop production. 10% of expected 2013-crop production is sold via cash forward contract for harvest delivery.

Soybeans

Price action: Soybean futures closed 10 1/4 and 8 cents lower in the May and July contracts, respectively. The other contracts were 3 to 5 cents lower. Futures finished with sharp losses for the week. Old-crop futures moved to the bottom of the extended, choppy trading range, while new-crop contracts violated that support.

5-day outlook: Bears have technical momentum and fundamental support is lacking. Therefore, soybeans are susceptible to followthrough selling next week, barring fresh bullish news. The key will be whether old-crop soybeans violate support at the bottom of the extended, choppy trading range. If so, selling pressure could really mount. If that support holds, a short-covering rebound could unfold, though the upside is limited to corrective buying.

30-day outlook: Given ongoing bottlenecks at Brazilian ports, there were some hopes Chinese end-users would continue buying U.S. soybeans to fill in near-term needs. But bird flu could slow Chinese feed demand and limit export demand for U.S. soybeans even if the Brazilian shipping delays persist.

90-day outlook: Some traders believe USDA's Prospective Plantings Report underestimated soybean acres. If there are serious corn planting delays in the Corn Belt, which appears possible looking at the near-term forecast, talk of soybean acres increasing from March intentions will build.

Hedgers: 100% sold on 2012-crop in the cash market. 10% of expected 2013-crop production is sold via cash forward contract for harvest delivery.

Cash-only marketers: 75% sold on 2012-crop production. 10% of expected 2013-crop production is sold via cash forward contract for harvest delivery.

 

Wheat

Price action: Wheat futures finished 2 to 5 cents higher in Chicago, mostly 2 to 4 cents higher in Kansas City and steady to 4 cents higher in Minneapolis. For the week, wheat futures posted corrective gains, led by Chicago contracts.

5-day outlook: Talk of Chinese demand for U.S. wheat sparked a short-covering rally in wheat futures this week. Unless at least some of that demand talk is confirmed next week, wheat futures are at risk of fresh selling pressure.

30-day outlook: Focus over the next month will be split between demand and the condition of the HRW crop. For a sustained price recovery to unfold, both factors must be supportive. Otherwise, traders will view price strength as a selling opportunity.

90-day outlook: Some of the HRW crop has time to recover, but given the severe lack of soil moisture, timely rains are needed this spring. Unfortunately, the extended weather outlook shows little hope for a significant increase in spring rainfall. If timely rains are not seen, the urgency for traders to build weather premium into the market would increase.

Hedgers: 75% sold on 2012-crop in the cash market. No 2013-crop sales advised yet.

Cash-only marketers: 75% of 2012-crop is sold. No 2013-crop sales advised yet.

 

Cotton

Price action: Cotton futures ended 65 to 168 points lower, with nearby contracts leading losses. Futures ended near weekly lows and below week-ago.

5-day outlook: Fundamentally, the cotton market is still well supported as there have not been any signs of a major letup in demand despite the sharp price rise. Also, cotton acreage will decline sharply this year. Technically, the uptrend remains firmly intact, but increased volatility amid the price consolidation under the recent highs hints at topping action.

30-day outlook: Focus is on Chinese cotton demand. The country is trying to sell state-owned reserves, but it's expected new import quotas will be announced sometime this month. And based on limited demand for government reserves to this point, it appears Chinese mills would prefer to buy foreign cotton.

90-day outlook: The National Cotton Council survey in early February signaled U.S. cotton plantings would fall to 9 million acres. USDA's survey work in early March signaled 10 million acres would be planted to cotton. If corn and soybean prices fall sharply, the actual decline in cotton acres may not be as big as anticipated. Still, cotton acres will be down sharply.

Hedgers: 100% sold on old-crop in the cash market. 25% of expected 2013-crop production is sold via cash forward contract for harvest delivery.

Cash-only marketers: 85% sold on old-crop. 25% of expected 2013-crop production is sold via cash forward contract for harvest delivery.

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