Crops Analysis (VIP) -- February 7, 2014

February 7, 2014 08:48 AM
 

Corn

Price action:
Corn futures posted slight losses for much of the day, but the market firmed late to finish 1 1/4 to 2 cents higher. For the week, most contracts ended around a dime higher.

5-day outlook: On Monday, traders expect USDA to lower its corn ending stocks forecast by around 25 million bu. from January to 1.606 million bu. due to strong demand at home and abroad. The fact that total corn export bookings stand at 91% of USDA's export projection with 30 weeks remaining in the 2013-14 marketing year certainly indicates this is warranted. Reactions to the report will shape market action next week. Weekly export updates will also be key to price action.

30-day outlook: While demand for U.S. corn has been strong, the issue of China rejecting/canceling U.S. cargoes due to an unapproved GMO trait continues to hang over the market. This week, China canceled a 220,000-MT corn order for 2013-14 delivery. Therefore, additional upside potential for corn is limited.

90-day outlook: Attention this spring will be on the start of planting in the U.S. -- soil moisture, weather, planting timeliness and what farmers ultimately end up planting. With the new-crop soybean/corn ratio at 2.44:1, the price incentive to plant beans over corn has lessened.

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 around a nickel higher in the first four contracts and 3 to 4 cents higher in deferred contracts. Futures finished near their highs of the day and sharply higher than a week earlier.

5-day outlook: Soybean prices will take their cue from Monday's Supply & Demand Report from USDA. The continuing strong export pace without the long-expected cancellation of purchases by China has traders looking for a downturn in carryover supplies. Futures are at risk of slipping lower if that expectation is not met.

30-day outlook: Brazil's soybean harvest is underway and so far no transportation problems have developed to slow the shipment of the record crop out of the country. The movement of that country's supplies into global trade will eventually pressure old-crop prices. Rallies in new-crop prices will be tempered by ideas of increased soybean plantings this year.

90-day outlook: Traders believe China overbooked soybean purchases from the U.S. as a hedge against a rerun in the logistics issues that prevented timely shipment of Brazilian soybeans to China last year. However, no cancellations have yet occurred and China continues to be a lead buyer of U.S. soybeans. Nearby prices will remain strong as long as that situation continues as old-crop supplies are tight.

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 closed 2 to 3 cents lower today, while HRW and HRS futures finished narrowly mixed. For the week, wheat futures posted the strongest price performance in months, but finished well off this week's highs.

5-day outlook: To build on this week's corrective gains, wheat futures need a bullish report from USDA Monday. While traders are expecting USDA to trim its domestic carryover forecast, the data will be a reminder of plentiful global wheat supplies. Be prepared to use this week's price strength to advance old- and new-crop sales if the market indicates the corrective rebound has run its course.

30-day outlook: While the export pace is running above the "required" pace, wheat traders have been slow to respond to the better-than-expected demand. As the soybean export season winds down, there will be more opportunity for exporters to sell U.S. wheat. The biggest challenge to wheat exports will remain plentiful global supplies.

90-day outlook: HRW crop condition ratings signal harsh winter weather has taken a greater bite out of the crop than expected. While this helped support the corrective rebound in wheat futures this week, it isn't a factor that will provide sustained price support as the level of winterkill damage won't be known until the crop breaks dormancy. If unfavorable weather persists into spring, it would be much more price-supportive.

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 finished 64 to 116 points higher today. While that was well off today's highs, futures finished high-range for the week and posted solid gains.

5-day outlook: Traders are expecting USDA to cut its 2013-14 carryover projection in the Supply & Demand Report Monday. If the market doesn't have a bullish response to USDA's report data, it would suggest a top is in the works. Bulls need a push above the January highs to build upside price momentum.

30-day outlook: The National Cotton Council will release its survey on cotton plantings this weekend. That will give traders the first true gauge of expected cotton acreage for the upcoming growing season and set the stage for price action in new-crop cotton futures ahead of USDA's Prospective Plantings Report at the end of March.

90-day outlook: Traders are still waiting to see how China's new farmer subsidy system will impact Chinese plantings, which are expected to be down, and the government's handling of massive state-owned reserves. Those factors will determine how much U.S. cotton China purchases, which is a key longer-term price component for the cotton market.

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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