Crops Analysis (VIP) -- December 7, 2012

December 7, 2012 08:47 AM


Price action: Corn futures were hit with heavy profit-taking pressure to end the week due to strength in the dollar and news Taiwan purchased Brazilian corn. March corn futures ended around a 15 cents lower than last week's close and remain within the boundaries of the multi-month consolidation phase.

5-day outlook: The corn market needs fresh demand news to bolster traders' appetite to extend long positions. With exports lackluster and ethanol production softer due to historically high prices, look for corn to continue within its established price range. Downside risk should be limited unless outside market pressures intensify or USDA surprises the market by increasing carryover in its December S&D Report by more than traders expect.

30-day outlook: China has recently shown up on the weekly export sales report buyers list. If that continues, it could attract more attention and limit pressure on futures. Meanwhile, traders are also keeping a close eye on the fiscal cliff situation. If lawmakers fail to reach a compromise by the end of the year, investors' confidence in the commodity markets will be shaken.

90-day outlook: The soybean/corn price ratio currently suggests corn is aggressively bidding for acres. But to add more than the 96.9 million planted in 2012, weather conditions will again have to be very favorable (read that DRY). Current weather trends signal soil moisture will be low heading into planting next spring, but producers are also dissatisfied with last year's corn-on-corn yields, which suggests a lot of those acres will be switched to soybeans.

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 closed out the week with losses of 10 to 19 cents through the July contract today. Farther deferred futures ended 4 1/2 to 9 1/2 cents lower. But soybeans still posted strong gains for the week.

5-day outlook: Much of traders' focus early next week will be on USDA's Supply & Demand Report Tuesday, which will be a reminder that soybean stocks will be tight through 2013. But barring any major surprises, traders will also be focused on Chinese demand and South American crops. More Chinese purchases are likely as crushers still need soybeans for first quarter delivery. On the South American crop front, weather will be key as traders head into the weekend with forecasts calling for improved conditions with rains in the outlook for dry areas of southern Brazil the next five days.

30-day outlook: South America is still expected to grow a record soybean crop this year, but production estimates have declined from initial figures. If there are serious weather/crop concerns over the next month, the market will respond with price gains as record South American production is needed to supply the world with soybeans.

90-day outlook: Initial soybean harvest in Brazil will start in January, but the bulk of the Brazilian and Argentine crop won't be ready for export until around the middle of the first quarter. The U.S. will have to almost solely supply the world with soybeans until then.

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 at all three locations spent most of the day in negative territory and ended with slight losses in all but new-crop Chicago futures, which finished slightly higher. Futures posted little net change for the week.

5-day outlook: The markets are nearing the "holiday doldrums" season and considering the fiscal cliff looming at year-end, interest in adding either long or short positions will likely remain limited over the near-term. Next Tuesday, USDA will release its December Supply & Demand Report, although little market-moving news is expected.

30-day outlook: If we go over the fiscal cliff, commodities will likely face pressure on a broad move to reduce risk. But if leaders come to a fiscal cliff agreement ahead of year-end, attention will likely shift to supply and demand fundamentals. There have recently been a few signs that U.S. wheat exports are beginning to improve due to tightening supplies in the Black Sea region. Dollar strength will remain influential as to whether the U.S. garners more export business.

90-day outlook: With spring approaching, traders will turn their attention to the extreme, widespread drought stretching across the Southern and Central Plains. Unfortunately, El Nino is now seen as unlikely to develop this winter, which makes it more likely drought will persist through the winter. That could give wheat futures a price boost, although it's hard to convince traders to buy into crop problems ahead of spring.

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 saw two-sided trade today. Through the December 2013 contract ended 15 to 29 points higher for the day while far-deferred months were mixed. Cotton futures were little changed for the week.

5-day outlook: Cotton price action will likely be driven by outside markets, with dollar strength or weakness likely revolving around fiscal cliff negotiations. USDA's Supply & Demand Report Tuesday morning isn't expected to provide much price direction.

30-day outlook: Cotton futures will likely continue to chop sideways into year-end amid fiscal cliff uncertainty. A lack of fiscal cliff resolution could result in a broad commodity selloff. Market reaction regarding any deal will likely depend on what form it takes, though a short-term rally simply due to more economic certainty is a possibility.

90-day outlook: Bidding for acres will pick up in the months ahead, and the financial benefits of planting corn or soybeans over cotton suggest cotton will lose acres. Some are anticipating a very sharp reduction in cotton acres in 2013.

Hedgers: 50% priced on expected 2012-crop production via cash forward contract for harvest delivery. A breakout from that range is needed to spark a trending move.

Cash-only marketers: 50% priced on expected 2012-crop production via forward contract for harvest delivery.


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