Crops Analysis (VIP) -- January 14, 2014

January 14, 2014 09:01 AM
 

Corn

Price action:
Corn futures faced pressure for most of the day session, but the market did pare losses ahead of the close. Futures ended 2 to 3 cents lower through the May contract, with farther deferred months seeing even lighter losses.

Fundamental outlook: Traders in the corn market engaged in some light profit-taking today, encouraged by mild strength in the U.S. dollar index, gains since Friday and a closer look at USDA's report data. While USDA's carryover projection came in well below expectations due to record-strong 1st-qtr. usage and a smaller-than-expected 2013 crop peg, there is still plenty of corn as carryover is still forecast to rise sharply in 2013-14 from the previous year. Also, Brazilian corn crop prospects remain favorable. As a result, funds sold 6,000 corn contracts (30 million bu.) today.

Strong gains in the soybean market, thanks to drought concerns in Argentina, helped the market move well off its lows into the close.

Technical outlook: March corn futures settled above near-term support at $4.30 after dipping below this level earlier in the session. Tougher support stands at the contract low of $4.06 1/4. Resistance is tightly layered from the December high of $4.40 3/4 to the November high of $4.49 1/2 to the October high of $4.62.

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 saw choppy price action, but closed with gains of 12 to 14 cents through the July contract; deferred futures closed 3 1/2 to 8 3/4 cents higher. Meal saw spillover support, with soyoil weaker amid spreading. Funds bought an estimated 7,000 contracts of soybeans today (35 million bushels).

Fundamental outlook: A weaker start to the day session was viewed as a buying opportunity given the ongoing hot and dry forecast for Argentina. Meanwhile, some dry pockets are developing in central Brazil, although weather elsewhere is favorable and there are scattered showers in the extended forecast. See "Evening Report" for more.

While USDA did not make any daily sales announcements today, traders note the continued stronger-than-expected old-crop sales pace. China has aggressively booked U.S. beans this year as a hedge against potential Brazilian shipping delays, but the country could come in and cancel sales at any time.

Technical outlook: March soybean futures posted a strong upside day of trade on the daily chart and closed above the $13.00 level for the first time since Dec. 30. Back-to-back closes above this psychological level would turn it into support and make bulls' next target the December high of $13.39 1/4. Support lies at the January low of $12.62 1/2.

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: Traders viewed a weaker start in the wheat markets as a buying opportunity, with HRW futures leading the way on weather concerns. HRW ended 5 1/4 to 12 1/4 cents higher, with nearbys leading gains; SRW closed 4 1/2 to 6 cents higher; and HRS ended 1 3/4 to 3 1/4 cents higher. Funds bought an estimated 3,000 contracts of SRW wheat today (15 million bushels).

Fundamental outlook: A dry forecast the next 5 to 10 days across the Central and Southern Plains captured the attention of the market, as the long-lasting drought has recently spread. Traders will continue to keep an eye on the situation as moisture needs will be on the rise later this winter when the crop starts to come out of dormancy.

The oversold condition of the market also helped to support futures today, as traders note recent losses are overdone. But to encourage sustained buying, a constant dose of export news is needed to signal the U.S. is once again competitive on the global market.

Technical outlook: March SRW wheat futures posted an upside day of trade on the daily chart but the contract has a lot of work ahead to signal it has posted a near-term low. Initial resistance is at the 25% retracement level of the decline from the October high, which stands at the psychological $6.00 level. To confirm a low, the contract must complete a 38% retracement around $6.21.

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 saw two-sided trade today and ended 5 to 73 points higher on the day, with far deferred months leading gains.

Fundamental outlook: Cotton futures have seen consolidation trade since the start of the year, but the series of lower highs this month signals bears have a slight advantage. But considering that Friday's U.S. production and global carryover pegs favored market bears, the cotton market has held up well in the face of pressure.

Key to upcoming price action will be export demand to start the new year. Recent weekly export sales reports have disappointed for cotton, but those were for the holiday season, which often features light demand.

Technical outlook: Perimeters of the March cotton contract's recent trading range are the December high of 85.29 cents and the 2014 low of 82.39 cents. The contract finished near the midpoint of this range.

Hedgers: 50% of 2013-crop is sold in the cash market.

Cash-only marketers: 50% sold on 2013-crop production

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