Crops Analysis (VIP) -- February 14, 2014

February 14, 2014 08:55 AM
 

Corn

Price action:
Corn futures rallied into the close to post daily bullish reversals in nearby contracts and finished about steady with week-ago levels.

5-day outlook: Old-crop futures have remained in a two-week consolidation range, but chart action still strongly suggests a low was struck in January. This week March corn established $4.50 as key resistance as it tested the level, but was unable to move above it. Traders recognize corn demand is improving, but fear that if prices rally too much, demand will soften.

30-day outlook: Corn futures have not faced a "February break" thus far thanks to improved export demand. New-crop futures haven't posted as strong of a rally from the January low as old-crop futures, which reflects traders' attitudes that supplies will be plentiful well into 2015 -- even if farmers reduce corn acres this year.

90-day outlook: The new-crop soybean/corn price ratio is holding around 2.5:1, which isn't "buying" acres for corn or beans. Traders largely expect corn acres to be down and soybean acres up as producers desire a return to more traditional crop rotations.

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 finished 2 1/2 to 6 3/4 cents lower today with old-crop contracts leading declines. For the week, futures extended their price rallies off the winter lows.

5-day outlook: Old-crop soybean futures failed to confirm a breakout above the top of the broad range that has capped prices since late last fall. That could lead to some corrective selling next week. If futures confirm a short-term top, it would eventually point to a pullback to the $12.70 to $12.60 range in March futures. Fundamentally, traders will be watching weather in southern Brazil, Chinese export demand activity and USDA's 2014-15 projections from its Outlook Forum for price direction next week.

30-day outlook: Traders have been able to look past anticipated Chinese soybean cancellations to this point due to the tight old-crop ending stocks forecast and the fact export bookings are running above the "required" pace -- even after USDA upped its export forecast this week. But if China starts actively canceling U.S. soybean purchases as Brazilian exports pick up, it will be more difficult for traders to ignore.

90-day outlook: U.S. soybean acres will be up from year-ago, but some of the price incentive the market was giving producers has been removed. The new-crop soybean/corn price ratio is down to 2.46:1 after topping at 2.58:1 in mid-December. USDA will release producer planting intentions in the Prospective Plantings Report at the end of March.

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: 90% priced on old-crop. 10% of expected 2014-crop production is sold via cash forward contract sale for harvest delivery.

 

Wheat

Price action: Wheat futures enjoyed gains for most of the session and ended mid-range. SRW and HRS wheat finished roughly 1 to 4 cents higher while HRW wheat ended around a penny higher. For the week, wheat futures posted solid gains as the move off the winter low extended.

5-day outlook: Shipping delays in Canada have turned Japan to the U.S. to fulfill more of its wheat needs. The logistic issues are not expected to go away anytime soon, which should keep a floor under the wheat market. Projections from USDA's Ag Outlook Forum could influence market action in the wheat market next week.

30-day outlook: Traders will likely pay a bit more attention to drought that remains entrenched in the Southern and Central Plains as USDA's initial crop condition update on April 1 nears. Weekly/monthly state condition updates have revealed some notable declines in crop conditions relative to when winter wheat entered dormancy due to dryness and winterkill.

90-day outlook: However, the impact of any drawdown in U.S. wheat supplies will be tempered by the fact that world wheat supplies are and are expected to remain plentiful. For this reason, we feel the upside is limited and price strength must be sold.

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 posted an inside day of trade and a mixed close, with deferred months favoring the downside. Cotton futures posted moderate gains for the week, with the exception of the March contract -- it ended near last Friday's close.

5-day outlook: The chart posture of the cotton market continues to favor market bulls, but nearby contracts are nearing tough resistance around 90.00 cents. Plus, the market will continue to closely monitor export sales reports for signs higher prices are curbing demand. USDA's Ag Outlook Forum next week could also be a market mover as forecasts for 2014-15 will be updated.

30-day outlook: Cotton acres are expected to rise in 2014, with private surveys conducted thus far signaling 11 million acres-plus. Attention will increasingly shift to acreage projections and soil moisture levels as planting season nears. The Prospective Planting Report at the end of March will provide additional insight as to likely acreage.

90-day outlook: With U.S. cotton production expected to rise, demand from China as well as the strength of the U.S. dollar index will remain important relative to cotton prices. Early indications are that China's policy shift to direct farmer subsidies could actually lift its cotton imports, but how this all plays out remains to be seen.

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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