Crops Analysis (VIP) -- January 31, 2014

January 31, 2014 08:53 AM
 

Corn

Price action: Corn futures finished steady to fractionally higher in old-crop contracts, while most new-crop contracts posted fractional losses. Recent choppy trade continued this week.

5-day outlook: Export demand signals global end-users see U.S. corn as a value buy at current price levels. That limits downside risk for corn futures. But the upside is also limited as traders fear an extended price recovery would curb demand. That suggests the choppy price tone will continue near-term.

30-day outlook: The biggest threat to corn may be the soybean market. With the Brazilian export season underway, there's risk of China canceling U.S. soybean purchases, which would weigh on that market. With corn not being moved by its own fundamentals right now, pressure on soybeans could weigh on corn.

90-day outlook: Corn plantings will be down from year-ago. But with the new-crop soybean/corn price ratio under 2.5:1, soybeans no longer have the strong price advantage they once had. Price action through February as crop insurance price is set, along with early spring weather will help determine how many acres corn loses this year.

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 settled just off session highs with gains of 5 to 7 3/4 cents for the day. These gains helped most contracts finish just shy of last Friday's close.

5-day outlook: Brazil is gearing up for what is expected to be record shipments for the month of February as the crop is record-large and it is being harvested in a timely fashion. While the forecast for heat and dryness in the region could limit selling pressure, crop concerns are fairly minimal as the country has generally enjoyed a generally favorable growing season.

30-day outlook: In light of ample South American supplies, the market fully expects China to cancel some of the large U.S. bean buys it has on the books. The nation overbought U.S. supplies as a hedge against any production or logistic disruptions in South America. More surprising would be if China does not make some big order cancellations in the weeks ahead. The H7N9 bird flu situation will also remain in focus. If this outbreak becomes more widespread, Chinese feed demand could slow.

90-day outlook: Attention will be on the start of the 2014 growing season and what sort of acreage mix results. The price ratio between November beans and December corn is fairly balanced at just under $2.5:1, which diminishes incentive to plant soybeans over corn. However, most expect a shift to more traditional crop rotations, which would imply increased bean plantings. Mother Nature and price action going forward means 2014 acreage is still very much a moving target.

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 edged higher in narrow trading while HRW wheat closed fractionally to 4 3/4 cents higher and HRS finished 2 1/2 to 6 3/4 cents higher. HRW and HRS wheat futures closed in the upper half of their daily trading range. While all three flavors closed higher today, they all posted new weekly lows.

5-day outlook: The turn of the calendar could see traders reestablishing short positions after lifting those positions for month-end evening. Charts remain negative following the plunge to 3 1/2-year lows this week. The market has seen a few signs that U.S. wheat features are becoming more competitive on the global stage. But recent gains in the U.S. dollar index due to currency worries may reverse that trend.

30-day outlook: Wheat prices will remain under pressure from large global stocks. This winter's weather has not be kind to the HRW and SRW wheat crops due to the severe temperatures and harsh winds. But traders know the crop went into dormancy in good condition and there will not be an update on its condition until April. This relegates concerns over winterkill to the far back burner for the time being. The expanding drought in the Southwest is something, however, that could gain traction as the month progresses.

90-day outlook: Wheat futures will likely remain under price pressure due to large world wheat stocks and high U.S. corn supplies. Prospects for another large corn crop in 2014 will weigh on prices. Traders will also expect ample supplies of wheat to be grown this year as well, unless the crop emerges from dormancy in much worse condition than currently expected.

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 closed out a volatile week of trade with slight losses today. For the week, futures ended lower but avoided serious technical damage despite spiking uptrending support on Monday.

5-day outlook: The increase in volatility could be a sign the market is running out of steam. Unless uptrending support is violated, however, traders will be hesitant to get too aggressive on the short side of the market after this week's price action. If a short-term top is confirmed, the market could face heavy selling pressure.

30-day outlook: Export demand for U.S. cotton sharply increased the week ended Jan. 23, alleviating concerns demand may be slowing -- at least for now. With export demand holding strong, the belief is USDA will raise its export forecast and lower carryover. To build upside momentum in futures, however, export demand must be consistently strong.

90-day outlook: U.S. cotton plantings are expected to rise, though there's a level of uncertainty over how many more acres will get seeded this year. Traders should have a better idea after the National Cotton Council releases its annual producer survey next weekend and following USDA's Prospective Plantings Report at the end of March.

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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