Crops Analysis (VIP) -- February 12, 2014

February 12, 2014 08:47 AM
 

Corn

Price action:
Corn futures ended the day mixed, with the March through September contracts steady to 1 1/2 cents lower and near session lows, while new-crop futures closed mostly around 2 cents higher and near session highs.

Fundamental outlook: Spillover pressure from weakness in soybeans weighed on old-crop corn futures today, though selling was limited by long soybean/short corn spread unwinding. Traders are waiting on weekly export sales data from USDA tomorrow, as recent reports have shown rising prices have not slowed demand. Over the course of the past week, Gulf basis has been steady to firmer, which signals export demand is still strong.

The weekly ethanol data was also a positive sign of demand rebuilding, as it revealed an uptick in ethanol production last week (see "Evening Report" for more).

Technical outlook: December corn futures reached the $4.60 benchmark this morning, but couldn't move above that level. Closes above this resistance would open fresh upside potential to the November high of $4.78 1/4. Support is at the bottom of the late-February consolidation area near $4.45.

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: While soybean futures enjoyed gains during the overnight session, the market spent the day session under pressure. Futures ended low-range with old-crop contracts 8 to 11 3/4 cents lower and new-crop settled mostly 4 to 5 cents lower.

Fundamental outlook: News China canceled 272,000 MT of U.S. old-crop soybeans weighed on the market as traders fear this is just the start of Chinese cancellations. Tomorrow's weekly export sales data will be scanned for additional cancellations. China has aggressively booked U.S. soybeans as a hedge against any shipping disruptions in South America. The region's bean crop is expected to be record-large and thus far there have been no unusual shipping delays.

In addition, rains and cooler temps are moving into dry areas of southern Brazil, easing crop concerns after a very hot and dry stretch since late December. That also weighed on soybean futures today.

But pressure on deferred months was limited by reminders that overall soybean demand will remain strong. China also made a daily new-crop soybean purchase this morning.

Technical outlook: While the March soybean contract posted double-digit losses today, the market remains within the bounds of this week's wide trading range, which stretches from $13.12 1/2 to $13.40. These mark near-term support and resistance, respectively. The low-range close gives bears the advantage heading into the overnight session.

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: SRW wheat futures settled 2 to 3 cents lower, while HRW and HRS futures closed mixed with an upside bias.

Fundamental outlook: Wheat futures traded higher at points throughout the day. But ultimately, pressure on soybean futures and a weak close in old-crop corn futures pulled SRW contracts lower. While wheat has performed better than we expected recently, it will be difficult for the market to find active buying interest if beans and corn aren't firmer.

HRW futures managed to hold onto mild gains in all but the nearby contracts as traders remain concerned about damage caused by the very cold winter, though warming temps remove the threat of additional near-term winterkill issues. The drought situation in the Plains has also been supportive, but that alone won't be enough to keep the market supported near-term.

Technical outlook: March SRW wheat futures spiked the downtrend drawn off the October and December highs, but were unable to close above this key resistance. Bulls need a close above the downtrend and the psychological $6.00 mark to build upward momentum for the move off the January low. Failure to do so soon would suggest a short-term top is in place and point the contract back toward the contract low.

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: Cotton futures settled 7 to 35 points lower after a light, two-sided day of trade.

Fundamental outlook: Cotton futures faced light profit-taking pressure at times today, with that being the reason for the slightly lower close. But tight supplies in the physical market provided support at times and helped limit selling interest. While USDA didn't lower its carryover projection on Monday as expected, traders say the physical market argues supplies are tighter than indicated by the supply/demand balance sheet.

Strength in the cocoa, coffee and orange juice markets is also supportive for cotton futures. Cumulatively, these softs markets, including cotton, are the strongest of the commodity markets right now, helping fuel bullish attitudes in cotton.

Technical outlook: March cotton futures poked above the Monday/Tuesday double-top at 88.84 cents but failed to find fresh buying and mildly faded. While a strong technical uptrend from the November low remains firmly intact and there has been no indication of a top, the contract is at a price level that has stalled multiple price rallies over the past 11 months.

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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