Crops Analysis (VIP) -- January 3, 2014

January 3, 2014 08:41 AM


Price action:
Corn futures enjoyed short-covering to close out the week and finished mostly 3 cents higher today. But futures still posted slight losses for the week and did more technical chart damage in the process.

5-day outlook: Futures must see followthrough buying on Monday to build a case of a near-term low being in the works. That could be difficult as traders begin to more actively even positions for Friday's Annual Crop Production, Quarterly Grain Stocks and Supply & Demand Reports. Traders will be cautious about aggressively moving to one side or the other as they recognize stocks reports have been major market movers in the past.

30-day outlook: Traders will continue to keep an eye on South American weather, as recent rains across Argentina have provided much-needed relief. But there remains more downside risk to South American corn production this year as safrinha-crop acreage is expected to be slashed this year.

90-day outlook: Demand continues to be rebuilt, which is helping to slow the decline in corn futures. Traders will also begin to shift their attention to 2014-cropping plans in the weeks and months ahead. General expectations are that soybeans will steal some acres from the 2013-crop corn base due mainly for agronomic reasons, as well as the evening in the price ratio.

Hedgers: 25% of 2013-crop production is sold in the cash market. Be prepared to advance sales on an overdue bounce.

Cash-only marketers: 25% sold on 2013-crop. Be prepared to advance sales on a bounce.



Price action: Soybean futures closed slightly higher in a narrow trading range that saw January futures finishing 2 1/4 cents higher, other contracts closing 1 to 2 cents higher through July and 1 /1/4 cent lower to 1 3/4 cents high in deferred contracts. January futures posted their lowest weekly close since Nov. 15.

5-day outlook: Futures continue to be supported by strong exports, but could face pressure in the near-term as traders look for China to cancel some purchases as the South American crop becomes available. Traders will also be focused next week on evening positions as they prepare for Friday's barrage of USDA reports.

30-day outlook: Prices face the prospects of competing with robust South American soybean supplies with early harvest beginning in central Brazil. That competition was delayed last year as that country struggled moving its crop into global trade channels. While the jury is still out on whether or not those logistical problems have been solved, market concerns over this issue are relatively low. That leaves the market preparing for a large supply to move to the market, which is not a positive for U.S. soybean prices.

90-day outlook: Soybean prices will face two major headwinds in the first quarter of 2014. First is a record-large supply from South America. Second is the expectation farmers will boost planted soybean acres this spring. Both factors will tend to keep a damper on soybean prices going forward.

Hedgers: 100% sold in the cash market on 2013-crop production. We'll manage risk on the board the remainder of the marketing year.

Cash-only marketers: 75% sold on 2013-crop production.



Price action: Wheat futures saw a choppy day of trade, but the market firmed into the close. SRW wheat settled 4 2/4 to 8 3/4 cents higher, with the front-month back above the psychological $6.00 level. HRW wheat ended 8 1/2 to 11 1/4 cents higher and most HRS contracts posted gains around 4 cents. The wheat complex still posted slight weekly losses.

5-day outlook: Concerns about winterkill did garner some late attention from traders as they looked at the forecast for temps to dip well below normal on the Plains this weekend after a brief warm-up eroded snowcover. Snow is possible as far south as the northern Delta. Also, several contracts remain oversold according to the Relative Strength Index (RSI), signaling some more corrective trade is warranted.

30-day outlook: But buying interest will likely remain limited to short-covering until signs arise that U.S. wheat is again attracting strong export demand. A poor showing in today's weekly export sales update and news Egypt again passed over the U.S. in its weekly tender for 535,000 MT of wheat in favor of Black Sea and French supplies keeps high shipping costs in focus.

90-day outlook: As the winter wheat crop emerges this spring, attention will be on weekly crop condition and drought updates. Drought has eased substantially in recent months, but the region still has a long way to go. Some form of drought still covers 95.29% of Kansas.

Hedgers: 75% sold on 2013-crop in the cash market. No 2014-crop sales are advised.

Cash-only marketers: 50% sold on 2013-crop. No 2014-crop sales are advised at this time.



Price action: Cotton futures softened to wrap up the week. The market ended low-range with moderate losses, which resulted in a lower week-over-week close.

5-day outlook: While the uptrend in cotton remains intact, the market is brushing up against uptrending support drawn off the November and December lows. Improvement in next week's export sales report and results of next Friday's Crop Production Report will be key to the rally continuing. Informa Economics expects USDA to mildly increase its U.S. cotton production estimate to a still-tight 13.14 million bales.

30-day outlook: But global cotton supplies are still ample. In fact, the International Cotton Advisory Committee expects record-large global cotton ending stocks of 19.78 MMT for 2013-14. This will keep the cotton market's upside in check.

90-day outlook: Lower row-crop prices in 2014 will likely result in an increase in cotton acres this spring relative to this year's low plantings. However, the amount of increase will depend on price strength this spring. This, in turn, will largely hinge upon demand strength from China. This is an uncertain area since the country plans to wind down its stockpiling program soon and replace it with farmer subsidies.

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

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

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