Crops Analysis (VIP) -- December 4, 2013

December 4, 2013 08:46 AM


Price action:
Corn futures settled 2 3/4 to 5 1/4 cents higher today, which was in the upper end of today's range but off session highs.

Fundamental analysis: Traders brushed aside confirmation from China's quarantine authority that it has rejected 120,643 MT of U.S. corn this month in addition to the rejection of a 60,000-MT cargo of U.S. corn in November, due to their containing a GMO trait unapproved for import into the country. Traders already know about the rejections and are expecting more as additional cargoes of U.S. corn are en route to China. Also helping offset the Chinese rejections is the expectation these cargoes will be diverted to other Asian destinations.

Also helping divert traders' attention from the Chinese news today were daily corn sales to Mexico totaling 167,750 MT. Of that total, 132,600 MT is for 2013-14, while the remaining 33,150 MT is for 2014-15 delivery. Current prices continue to attract export demand and traders are expecting another strong weekly export sales tally tomorrow morning.

Aside from the demand happenings, funds are starting to cover short positions as they prepare for year-end. Funds bought a net 9,000 contracts (45 million bu.) of corn today.

Technical analysis: After dropping to a new yearly low Monday, March corn futures have posted corrective gains the past two sessions. To signal an extended corrective rebound is underway, the contract must clear the November high at $4.49 1/2.

Hedgers: 25% of 2013-crop production is sold via cash forward contract for harvest delivery.

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




Price action: Soybean futures moved higher shortly after opening lower at the start of the day session. Futures finished near the top of the daily range, 5 1/4 to 9 3/4 cents higher with the January contract leading gains. Funds bought a net 5,000 contracts (25 million bu.) of soybeans today.

Fundamental analysis: Soybean futures opened weaker on gains in the U.S. dollar index and concerns recent rejections of U.S. corn by China for containing an unapproved GMO corn variety could be a warning of similar rejections for U.S. soybeans. But prices erased losses and surged higher after the early probe lower failed to attract followthrough selling.

Export demand remains strong and traders are expecting another reminder of that in tomorrow morning's weekly export sales data. But traders also expect record production to be harvested in South America and U.S. soybean plantings to rise in 2014.

Technical analysis: The inability of January soybean futures to take out Tuesday's low in followthrough to the negative bearish reversal posted Monday prompted some chart-based buying. Futures finished near the $13.40 resistance area, which includes Monday's high of $13.46. If that resistance area is penetrated, the next level of resistance begins at $13.60 and includes the downside gap at $13.74 left on Sept. 16.

The November uptrend line offers support at $12.88 with the fall uptrend line providing support at $12.68. The mid-November low also offers support from $12.80 to $12.68.

Hedgers: Get to 100% sold in the cash market on 2013-crop production. We'll manage risk on the board the remainder of the marketing year.

Cash-only marketers: Get to 75% sold on 2013-crop production.




Price action: Wheat futures favored the upside overnight and were mixed through the morning hours. But as the session progressed, selling interest picked up. SRW wheat futures ended 3 to 6 cents lower, while HRW futures closed 2 to 7 cents lower and HRS futures finished 5 to 12 cents lower.

Fundamental analysis: A shockingly big Canadian all wheat crop estimate weighed on wheat futures today, especially spring wheat futures. (See "Evening Report" for details of the Canadian crop estimate). Record production north of the border means there will be plenty of competition for U.S. spring wheat -- now more competition than previously expected.

Wintry weather headed toward the country's midsection limited selling interest in SRW and HRW wheat futures for much of the session. But any potential damage is expected to be limited as areas where the coldest temps are expected are also forecast to get snow, which would act as a protective blanket.

Technical analysis: March SRW wheat futures are working on a rough rounded double-bottom on the daily chart. Confirmation of a short-term low would suggest a period of corrective price strength is likely. But if the contract fails to push higher and the fall lows are violated, it would point to potentially heavy price pressure.

Hedgers: 75% sold on 2013-crop in the cash market. No 2014-crop sales are advised.

Cash-only marketers: 50% sold on 2013-crop. No 2014-crop sales are advised at this time.




Price action: Cotton futures ended 14 to 61 points higher through the October 2014 contract. Far-deferred contracts posted slight losses on the day.

Fundamental analysis: Cotton futures were supported by short-covering today. An easing of demand concerns is encouraging traders to lighten short positions they added from the start of October to mid-November. Traders are less concerned about the sale of Chinese state-owned cotton reserves crimping export demand as prices are too high and quality is a concern.

Traders will get a weekly export sales update for the week ended Nov. 28 tomorrow morning. That will be another indication of whether the recent halt to the price decline deterred foreign buying interest in U.S. cotton.

Technical analysis: What once looked to a be a bearish pause in March cotton futures now appears to be bullish basing action on the daily price chart. To signal a short-term low is in place, the contract must push above 80.83 cents, which is a 38% retracement of the price plunge from the October high to the November low.

Hedgers: 50% of expected 2013-crop is sold in the cash market.

Cash-only marketers: 50% sold on 2013-crop production.


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