Crops Analysis (VIP) -- December 21, 2012

December 21, 2012 08:38 AM


Price action: Corn futures enjoyed light short-covering today, but this was far from enough to offset major losses for the week.

5-day outlook: With funds still heavily long the corn market, there is risk of continued fund selling through the end of the year. Fund selling could be intensified if the fiscal cliff talks continue to grind and/or there's any negative demand news.

30-day outlook: If funds actively liquidate long positions to finish this year, it would increase they odds they will return as buyers to start the new year. That's typically the case to some extent in any year, but it may be even more pronounced this year if they actively lighten their long exposure on year-end positioning.

90-day outlook: Once the calendar flips to the new year, some of traders' focus will shift toward the acreage battle. Corn will pick up acres in the South from cotton and rice due to much better potential returns, but may lose some acres in the Corn Belt as producers go back to more normal crop rotations even though corn has the per-acre revenue advantage.

Hedgers: 100% sold on 2012-crop in the cash market -- 10% for March 2013 delivery. No 2013-crop sales recommended yet.

Cash-only marketers: 75% sold on 2012-crop --10% for March 2013 delivery; 15% for May 2013 delivery. No 2013-crop sales recommended yet.



Price action: Soybean futures ended 20-plus cents higher through the August contract today, but this was not enough to offset heavy losses earlier this week. Bean futures ended sharply lower for the week, as did soymeal and soyoil futures.

5-day outlook: Holiday trade often results in increased volatility, but this may be even more heightened next week as the market is becoming increasingly concerned about the unresolved fiscal cliff looming at year-end. Traders don't like uncertainty, so more unease with the fiscal cliff talks could lead to additional liquidation pressure.

30-day outlook: Much of the pressure on soybeans this week stemmed from hefty bean order cancellations by China. But as the nation's crushers are still thought to need several tons of beans for first quarter delivery, China will need to rebook these needs relatively soon. South American supplies are not expected to actively hit the market until February. Traders will be watching to see how low U.S. bean prices must go before China returns as a buyer.

90-day outlook: Brazil is on track to produce a record-large crop and South American new-crop supplies will be available for export by the middle of the first quarter next year. But South America is notorious for port strikes and troubles getting beans shipped. Pressure from an expected easing of export demand for U.S. soybeans should be at least partially offset as soybeans compete for acres.

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. No 2013-crop sales advised yet.



Price action: Wheat futures enjoyed light short-covering much of the day, but this gave way to some late selling with the result being a mixed finish for Chicago wheat and a slightly lower close for most Kansas City and Minneapolis contracts.

5-day outlook: Many will take an extended break from the markets for Christmas, which will likely result in lighter trading volume next week. Signs of progress regarding fiscal cliff talks or a lack thereof will be highly influential as to investor risk appetite and thus interest in buying futures. Fiscal cliff talks ended on a sour note today and are not expected to resume until Dec. 27, which could give traders a negative bias much of the week.

30-day outlook: Wheat has recently begun to see signs it is finally competitively priced on the global export market. But after the long stretch without such news, proof of improved demand will be needed to spark any buying interest, especially after USDA raised both its world and U.S. carryover estimates this month.

90-day outlook: The National Weather Service's Climate Prediction Center updated its Seasonal Drought Outlook yesterday, and it spells trouble for winter wheat country. Drought is expected to persist or intensify west of the Mississippi River. But this situation may not get much attention until the winter wheat crop is ready to come out of dormancy.

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.



Price action: Cotton futures settled slightly higher today and for the week. Futures extended their price recovery from the November low.

5-day outlook: Unless cotton futures are able to push above the top of the extended, sideways range and find fresh buying interest, the market is vulnerable to a corrective pullback next week. For one, traders will be looking to close out positions for the year. Plus, there are plenty of macro-economic concerns to limit traders' willingness to add new long positions.

30-day outlook: Despite plentiful global supplies, export demand has been strong since the beginning of November. Key will be whether the demand pace maintains as futures have moved back to levels where demand has slowed in the past. Plus, export demand typically slows around the holidays. Sustained strong demand is likely needed to trigger an upside breakout from the choppy, sideways range given macro-economic uncertainties.

90-day outlook: Cotton is expected to lose acres to corn and soybeans across the South. Some predictions are that cotton acreage could be halved, although that's too aggressive in our opinion. But a reduction in cotton acres to around 10 million is not out of the question. Anticipation of a sharp drop in cotton acres should support new-crop cotton futures.

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