Crops Analysis (VIP) -- June 21, 2013

June 21, 2013 10:00 AM
 

Corn

Price action: Corn futures extended losses into the close, with the front-month July contract leading losses amid bull spread unwinding. For the week July corn still posted slight gains of around 6 cents for the week with December corn ending around 23 cents above last week's close.

5-day outlook: The unwinding of bull spreads in the face of tight old-crop supplies and basis improvement strongly suggests traders' focus is turning to new-crop fundamentals. That doesn't necessarily mean traders have turned "bullish" toward new-crop futures, as December corn was unable to see sustained trade above $5.70. But doing so next week would turn that level into support. Next week's focus will be on evening positions ahead of the key USDA Grain Stocks and Acreage Reports.

30-day outlook: Due to the prolonged planting season, traders believe USDA's March acreage figure was the high-water mark of the season. But USDA's June acreage data to be released next week will not be the final say on acreage. Traders' focus is also turning more and more to weather as the key July Fourth period is just around the corner. The NWS signals above-normal temps will continue the remainder of June, but it didn't provide any clues in this week's extended weather outlook as to Belt-wide weather in July.

90-day outlook: Given the tightness of old-crop supplies, the market will be "hungry" for new-crop corn. If weather conditions improve and a trendline yield is achieved, a more comfortable carryover situation will drive prices lower and begin a period of demand-building. But another below-trendline year would maintain a tight supply situation and keep prices elevated.

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: 90% sold on 2012-crop. 25% of expected 2013-crop production is sold via forward contract for harvest delivery.

 

Soybeans

Price action: Soybean futures traded moderately lower in quiet trade through much of today's session before slumping into the close, leaving very toppy looking charts in the process. Both the July and November contracts posted their lowest close since May 24.

5-day outlook: This week's warmer temperatures followed by forecasts for weekend rains has traders looking for improving crop conditions to offset concerns over late emergence. Traders will turn their attention to USDA's major reports due Friday which will provide an update on June 1 stocks and planted acreage. However, USDA's Acreage Report is likely not the final answer as a fair amount of the nation's intended soybean (and corn) acres were still not planted during the report's survey period.

30-day outlook: Growing conditions for the planted crop could take over the lead concerns for the complex as traders are well aware of the tight old-crop situation. The ability of the crop to make up for lost time once it is emerged could top traders' concerns.

90-day outlook: August is the most critical month for determining soybean yields, which means August weather will drive trade through late summer. The 90-day weather outlook from the National Weather Service suggests only that there are "equal chances" of above-normal, normal and below-normal temps and precip during the period. As a result, traders will factor normal weather conditions into their thinking and assume a positive outlook toward yields -- for now.

Hedgers: 100% sold on 2012-crop in the cash market. 20% forward priced on expected 2013-crop production for harvest delivery. 50% of expected 2013-crop production is hedged in November soybean futures at $12.19.

Cash-only marketers: 90% sold on 2012-crop. 20% forward priced on expected 2013-crop production for harvest delivery.

 

Wheat

Price action: Wheat futures held up well in the face of heavy spillover pressure from corn and soybeans and a strong rally in the U.S. dollar index the latter half of the week. Most contracts at all three markets ended around 2 cents lower for the day but slightly higher for the week.

5-day outlook: Reports will drive market action next week. USDA on Monday will provide an update on spring wheat planting and HRW wheat harvest and then traders will actively prepare and later react to USDA's Quarterly Grain Stocks and Acreage Reports on Friday.

30-day outlook: Harvest results have thus far been varied with many locations reporting light test weights. Combines are just starting to roll in Kansas and if yields disappoint, downside risk should be limited. But upside potential will also remain restricted by hedge pressure.

90-day outlook: Global supplies are expected to make up for any shortfall with the U.S. crop. Plus, USDA's investigation into the finding of GMO wheat in Oregon has yet to yield any answers as to where the plants came from, leaving trading partners wary about U.S. wheat imports. These factors limit wheat's sustained rally ability.

Hedgers: 100% sold on 2012-crop in the cash market. No 2013-crop sales advised yet.

Cash-only marketers: 100% sold on 2012-crop. No 2013-crop sales advised yet.

 

Cotton

Price action: Cotton futures saw choppy action amid bull spreading today, ending 40 points higher in the July contract and 24 to 185 points lower in deferred months. Cotton futures moderately extended last Friday's steep selloff this week.

5-day outlook: Cotton futures appear to have put in a top, which signals the likely path going forward is steady to lower. Recent rains in Texas and poor economic data out of China weighed on the market this week. Attention next week will be on USDA's Acreage Report, which is out Friday.

30-day outlook: The National Weather Service's one-month weather outlook is unfavorable for the cotton crop, which is already rated below year-ago levels. All of Texas is expected to see above-normal temps and the western two-thirds of the state are expected to see below-normal precip.

90-day outlook: Drought is expected to persist or intensify across the western half of Texas over the next three months, which should keep cotton supported. But key to any renewed buying interest is demand from China. Recent economic data from the country has been less than rosy, but USDA in its latest Supply & Demand Report raised its old-crop domestic use forecast by 50,000 bales and its export projection by 350,000 bales.

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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