Crops Analysis (VIP) -- February 10, 2014

February 10, 2014 08:41 AM
 

Corn

Price action:
Corn futures traded in a slightly wider range than the market has seen of late, but overall market reaction was fairly subdued for a report day. Futures saw two-sided trade today and ended fractionally to 2 1/4 cents lower.

Fundamental outlook: Corn futures initially responded positively to USDA's much-larger-than expected 150-million-bu. cut to its corn carryover estimate from last month. This decline can be entirely chalked up to higher exports. But the market has been factoring improved demand into prices for some time. Thus, the initial jump gave way to some mild profit-taking.

Spillover from the soybean market also tempered the response. And the fact that carryover supplies are still quite ample limited any bullish reaction.

Technical outlook: March corn futures came within a penny of psychological resistance at $4.50 today, at which point selling pressure picked up. This remains bulls' initial target, followed by the August low of $4.59. Support is layered from the December high of $4.40 3/4 to the Jan. 13 high of $4.35 1/2.

Hedgers: 60% sold in the cash market on 2013-crop. 20% of expected 2014-crop production is sold via cash forward contract sale for harvest delivery.

Cash-only marketers: 50% sold in the cash market on 2013-crop. 20% of expected 2014-crop production is sold via cash forward contract sale for harvest delivery.

 

Soybeans

Price action: Soybean futures closed 1 1/2 to 6 cents lower as the market had a negative reaction to USDA's report data. Old-crop contracts generally finished mid-range, while new-crop futures closed low-range.

Fundamental outlook: USDA surprisingly left its 2013-14 domestic carryover projection at 150 million bu. this morning. While traders were only expecting a modest downtick in ending stocks and the forecast is still tight, it still triggered a negative reaction as it wasn't bullish news. By cutting residual use (along with a modest uptick in imports) and indicating the figure is still above levels seen the past two years, USDA basically sent the message they still have 12 million bu. of "slack" (current residue use forecast) to work with. Therefore, it shouldn't be a surprise if USDA keeps carryover at 150 million bu. until later in the marketing year.

On the global front, USDA raised its Brazilian soybean crop projection 1 MMT to 90 MMT and trimmed its Argentine bean forecast by 500,000 MT to 54 MMT. Private crop estimates seem to be going in the opposite direction now, especially for Brazil, giving the impression that USDA is playing catchup. Still, the increase to the Brazilian crop estimate was mildly price-negative today.

Technical outlook: March soybean futures spiked the December high at $13.39 1/4 and then rolled over. That could be a sign the contract is in the process of topping. Consecutive higher closes above the December high are needed to signal a breakout attempt. If the rally stalls, bears' downside target is the $12.70 to $12.60 area.

Hedgers: 100% sold in the cash market on 2013-crop production. 10% of expected 2014-crop production is sold via cash forward contract sale for harvest delivery.

Cash-only marketers: 75% sold on 2013-crop production. 20% of expected 2014-crop production is sold via cash forward contract sale for harvest delivery.

 

Wheat

Price action: Wheat futures closed higher and near their highs for the day, with HRW futures leading gains. HRW wheat futures finished 9 to 13 1/2 cents higher, SRW futures closed 5 3/4 to 7 1/4 cents higher and HRS futures finished 6 to 12 1/4 cents higher. Funds bought 7,000 contracts (35 million bu.).

Fundamental outlook: Wheat futures moved higher at the open of the day session and strengthened mid-morning due to stronger-than-expected weekly export inspections data. Futures then moved higher on USDA's surprise cut to its 2013-14 carryover estimate.

USDA lowered 2013-14 carryover by 50 million bu., which was much steeper than the 5-million-bu. cut expected by traders. The trade mostly ignored news Ukraine's ag ministry says the country exported 22 MMT between July 1, 2013, and Jan. 27, 2014, which is a 33.3% increase over the year prior. The ministry expects the country's exports for the 2013-14 marketing year to rise from 23 MMT last year to 32.5 MMT.

Technical outlook: March SRW wheat futures traded higher but failed to move through resistance at $5.90 and at last week's high of $5.92 3/4. However, the $5.70 area continues to provide support. The March HRW wheat futures contract soared past last week's high, closing above the psychological $6.60 level. The next major layer of resistance starts at the Dec. 6 low of $6.93 1/4.

Hedgers: 100% sold on 2013-crop in the cash market. 35% of expected 2014-crop production is sold via cash forward contract for harvest delivery.

Cash-only marketers: 75% sold on old-crop. 35% of expected 2014-crop production is sold via cash forward contract for harvest delivery.

 

Cotton

Price action: While cotton futures enjoyed strong gains this morning, the market reversed course following the release of USDA's reports this morning. Cotton futures did settle off their lows, however, for a narrowly mixed close.

Fundamental outlook: Cotton futures rallied into the Supply & Demand Report amid ideas USDA would raise its export forecast, which would have lowered cotton carryover from last month. But the market softened when such hopes were dashed and USDA left its cotton carryover peg unchanged as well as its export projection unchanged from last month.

The market did move off its lows thanks to USDA's decision to lower its Chinese cotton crop estimate by 1 MMT to 32.0 MMT. Also, U.S. cotton carryover of 3 million bales is still down sharply from year-ago.

Technical outlook: Preceding USDA's reports, March cotton futures traded up to its highest level since Aug. 20. But the contract softened following the report. Selling dried up just above 87.00 cents, marking that level as near-term support. The uptrend since November remains intact.

Hedgers: 75% of 2013-crop is sold in the cash market. 25% of expected 2014-crop production is sold via cash forward contract for harvest delivery.

Cash-only marketers: 75% of 2013-crop is sold. 25% of expected 2014-crop production is forward sold for harvest delivery.

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