Crops Analysis (VIP) -- August 30, 2013

August 30, 2013 09:24 AM
 

Corn

Price action: Corn futures closed fractionally to around a penny higher in all but the September contract, which ended 2 1/4 cents lower. After strong gains on Monday, corn futures faded, but still ended slightly higher than last Friday's close.

5-day outlook: Focus will be on weather when traders return from the extended holiday weekend. Forecasts offer some hope for "relief" from the extreme heat next week, though temps are expected to be normal to above normal and there's limited rainfall chances. If forecasts are hotter and drier than expected ahead of the weekend, futures will rally. But if cooler temps and some rains fall, expect price pressure.

30-day outlook: Given the lack of maturity with this year's crop, late-season weather conditions will be even more critical than normal in determining yield. As a result, we'll continue to closely monitor weather and crop conditions -- and adjust our production and yield estimates as needed. USDA's second crop estimate will be released Sept. 12.

90-day outlook: The corn market is still trying to rebuild the demand base which was slashed by last summer's runup to record prices. At the same time, the market is also trying to rebuild funds' confidence in the long side of the market. Neither will be easy to do or quick. And as a result, it will be hard to encourage sustained buying interest unless there are major late-season crop problems.

Hedgers: 100% sold on 2012-crop in the cash market. 25% of expected 2013-crop production is sold via cash forward contract for harvest delivery.

Cash-only marketers: 100% sold on old-crop. 25% of expected 2013-crop production is sold via forward contract for harvest delivery.

 

Soybeans

Price action: Soybean futures faced pressure for most of the day, but deferred months saw some buying interest return at the close. September through March futures ended 4 1/2 to 11 cents lower for the day. For the week, the bean market posted solid gains.

5-day outlook: Traders reduced risk ahead of the weekend amid a bit milder of a forecast for next week. But the market could see a return of buying interest when USDA provides its read on crop damage due to this week's intense heat and dryness in the Corn Belt on Tuesday. Buying could accelerate if rains do not fall and heat builds in the western Corn Belt, as expected.

30-day outlook: This week's heat wave shut many bean plants down early and accelerated development of the crop, pulling the expected harvest date forward to a more normal time. We expect disappointing yields to lift the bean market, because even before this week's damaging heat and dryness, the bean crop failed to impress.

90-day outlook: With the size of the bean crop known, attention will shift to demand. Last year's high prices failed to appreciably reduce demand, which raises concerns about what sort of prices may be seen this marketing year, considering very tight carryover supplies and expectations for a poor 2013 crop.

Hedgers: 50% of expected 2013-crop production is sold via a forward-price cash contract for harvest delivery. 100% sold on 2012-crop in the cash market.

Cash-only marketers: 50% of expected 2013-crop production is sold via a forward-price cash contract for harvest delivery. 100% sold on 2012-crop in the cash market.

 

Wheat

Price action: SRW futures ended narrowly mixed while HRW futures closed fractionally higher in most contracts. HRS futures were 1 to 4 cents lower. SRW and HRW both posted mid-range closes for the day and finished slightly higher for the week. HRS closed on the lows of the day but slightly above a week earlier.

5-day outlook: Wheat prices will likely remain on the defensive as supplies are large, HRS harvest is underway and U.S. wheat is not competitively priced on the global market. Wheat will remain a follower to corn. Corn next week will be driven by trader's perceptions of weather impact on crop development. A return to above-normal temperatures along with continuing dryness across the Midwest could turn corn, and thus wheat, higher. If temperatures cool and precipitation occurs, corn prices could tumble, pulling wheat along.

30-day outlook: Wheat's future will continue to be tied to the direction in corn prices as wheat fundamentals are not strong enough to mount a price rally. New-crop corn supplies will rise versus old-crop but the recent heat wave is creating questions about the size of this year's final crop and how much carryover supplies may rise. Until traders get a firm grip on the size of this year's corn harvest, corn futures will likely weigh on wheat prices.

90-day outlook: The world continues to work its way through large global supplies, and as that process continues, U.S. wheat will be viewed as not competitively priced versus other suppliers, primarily the Black Sea region. The first positive step for U.S. wheat prices will come when the Black Sea region runs out of exportable supplies. The second positive step will come once the U.S. corn harvest moves beyond the 50% completion level. With recent intense heat trimming potential yield and the drought projected to continue, the market may soon find the projected buildup in new-crop carryover supplies may not be as large as previously thought. That will become more clear as the U.S. corn harvest crosses the 50-yard line.

Hedgers: 50% of 2013-crop is sold in the cash market. 100% sold on of 2012-crop.

Cash-only marketers: 25% of 2013-crop is sold. 100% sold on 2012-crop.

 

Cotton

Price action: Cotton futures closed slightly higher today in all but extreme far-deferred contracts and finished slightly lower for the week.

5-day outlook: After a failed upside breakout attempt from the extended, choppy range, cotton futures are now at the bottom of the range. A downside breakout seems likely, though it could turn into a bear trap if there isn't active selling below the established range.

30-day outlook: The cotton crop has gotten decent rains recently, which are easing crop concerns. But the crop isn't made yet and is therefore still vulnerable to weather. Aside from weather, traders are watching demand for fundamental price direction.

90-day outlook: China is considering ending its cotton stockpiling program and replacing it with a farmer-subsidy policy. If that happens, how China handles the selling of state cotton stockpiles, which account for over half of global stocks, will be key to the demand outlook for U.S. cotton.

Hedgers: 50% of expected 2013-crop production is hedged in December cotton futures at 83.87 cents. 50% of expected 2013-crop production is also sold via cash forward contract for harvest delivery. 100% sold on 2012-crop in the cash market.

Cash-only marketers: 50% of expected 2013-crop production is sold via cash forward contract for harvest delivery. 100% sold on 2012-crop.

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