Crops Analysis (VIP) -- July 5, 2013

July 5, 2013 08:56 AM
 

Corn

Price action: Corn futures opened around unchanged and then diverged into bull-spreading. The July contract finished 6 1/2 cents higher while the August closed 6 1/2 cents lower. New-crop contracts slowly lost steam throughout the day and posted double-digit losses.

5-day outlook: The negative tone Friday in all but the front-month July contract following the July Fourth holiday suggests more downward pressure is ahead for new-crop prices. Weather forecasts continue to appear favorable for plant growth, which has traders ignoring the sharply delayed crop in Iowa and Minnesota. Traders will also look for any changes in USDA's yield estimate and how USDA handles the higher planted acreage figures from last Friday's report in Thursday's Supply & Demand Report.

30-day outlook: Growing conditions will dominate trader thinking as July is usually the most critical crop-growing month for corn. Traders view current weather forecasts as favorable for crop development. With a high percentage of the crop not tasseling until the end of the month, trader concern could increase if that latter-half of the month weather outlook shifts to above-normal temperatures and below-normal precipitation. Tight old-crop supplies will continue to support spot cash prices.

90-day outlook: The market will continue to factor in an anticipated increase in available supplies from the growing crop. Planted acreage is up, according to USDA, and growing conditions currently appear to be favorable, which will tend to lift trader thinking on yields. Meanwhile, continuing strength in the dollar could prove a negative as a rise in the greenback makes U.S. corn more expensive to buyers.

Hedgers: 100% sold on 2012-crop in the cash market. 25% of expected 2013-crop production is sold via cash forward contract for harvest delivery.

Cash-only marketers: 100% sold on old-crop. 25% of expected 2013-crop production is sold via forward contract for harvest delivery.

Soybeans

Price action: July soybean futures closed 4 1/2 cents higher, while the August contract was 9 1/4 cents lower and new-crop contracts finished 21 to 23 cents lower. For the week, old-crop futures posted gains while new-crop contracts dropped sharply.

5-day outlook: Typically, price moves are accelerated or reversed coming out of the Fourth of July holiday. Based on price action to close out the week and forecasts calling for non-threatening conditions, there's more near-term downside price risk. USDA will update its soybean supply/demand table on Thursday.

30-day outlook: August is a big month for soybeans. In addition to it being a critical timeframe from a weather perspective, USDA also issues its first survey-based crop estimate in August. This year, the August Crop Production Report will include a resurvey of planted and harvested acreage. While history suggests there won't be a major change in planted acreage, USDA could downwardly adjust harvested acreage as it was historically high at 98.95% in the June Acreage Report.

90-day outlook: Once the market has a better handle on crop size, some of the focus will shift to demand as traders try to figure out how of this year's crop will be consumed. Growing global oilseed demand should build a solid longer-term floor of support under the market.

Hedgers: 100% sold on 2012-crop in the cash market. 20% forward priced on expected 2013-crop production for harvest delivery.

Cash-only marketers: 100% sold on old-crop. 20% of expected 2013-crop production is sold via forward contract for harvest delivery.

Wheat

Price action: Wheat futures faced pressure for most of the day. Chicago ended mostly 5 to 10 cents lower for the day and near steady with last week's close. Kansas City ended roughly 9 to 11 cents lower in all but the front-month, which was up a penny, and just off today's new contract lows. Minneapolis ended 6 3/4 to 11 1/4 cents lower and down for the week.

5-day outlook: Attention next week will be on USDA's Crop Production Report, which will feature the first survey-based estimates for the U.S. all wheat crop and spring wheat production. Otherwise, harvest-related hedge pressure will continue to ease as Monday's condition update will likely show harvest moved past halfway complete this week.

30-day outlook: China purchased 480,000 MT of U.S. SRW wheat this week as well as a rumored six cargoes of Australian wheat. This signals U.S. prices are at bargain levels and that production and quality troubles in China have increased its wheat needs. This should help the wheat market to put in a harvest low.

90-day outlook: But expectations for ample global wheat supplies should also limit the market's upside potential. Action in the wheat market will likely remain tied to corn. As combines begin to roll across the Corn Belt and production issues in key states like Minnesota and Iowa become known, gains in the corn market may pull wheat higher.

Hedgers: 50% of 2013-crop is sold in the cash market. 100% sold on of 2012-crop.

Cash-only marketers: 25% of 2013-crop sale is sold. 100% sold on 2012-crop.

Cotton

Price action: Cotton futures were pressured by strength in the U.S. dollar index to close out the week, but posted slight to moderate corrective gains for the week.

5-day outlook: Traders are turning more attention to new-crop growing conditions. Concerns about drought and extreme heat in the Southwest and southern Plains could result in additional weather premium being added to new-crop futures next week. But if the area picks up a shower or two, it would result in profit-taking.

30-day outlook: Next week brings another update to USDA's balance sheets. After USDA trimmed new-crop carryover by 400,000 bales last month, traders will be watching to see if the department increases usage estimates to offset the expected increase in production as the tables will reflect last month's higher acreage estimate.

90-day outlook: While domestic carryover is set to drop sharply from last year, global carryover is projected to rise substantially, which limits upside potential without a global crop threat.

Hedgers: 50% of expected 2013-crop production is hedged in December cotton futures at 83.87 cents. 50% of expected 2013-crop production is also sold via cash forward contract for harvest delivery. 100% sold on old-crop in the cash market.

Cash-only marketers: 85% sold on old-crop. 50% of expected 2013-crop production is sold via cash forward contract for harvest delivery.

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