Crops Analysis (VIP) -- March 12, 2014

March 12, 2014 09:58 AM
 

Corn

Price action:
Corn favored a firmer tone in daytime trade and extended gains into the close to finish 5 to 6 1/4 cents higher across the board.

Fundamental outlook: Early support came on spillover from surprising gains in the wheat market, as traders shrugged off spillover from sharp losses in soybean futures. Corn extended gains and wheat rallied on concerns about political unrest in Ukraine.

Corn was also supported by news Conab has lowered its Brazilian corn estimate, with strength in Gulf basis also supportive for futures. Gulf basis was steady to 4 cents higher today, which suggests current prices are not slowing export demand. Traders were disappointed by the recent slowdown in ethanol production, although they were reminded that winter-related transportation issues were behind the recent slowdown, as ethanol stocks tightened.

Technical outlook: May corn futures posted an upside day of trade on the daily chart, coming with a penny of the psychological $4.90 level. Closes above $4.90 would signal the market is again poised to see if there are buyers above the $5.00 level, as trade above that level last week attracted profit-taking. Support is at yesterday's low of $4.73 1/4.

December corn futures also posted an upside day of trade, with bulls' next target last week's high of $4.93 3/4 and support at this week's low of $4.74.

Hedgers: 70% sold on old-crop. 30% of expected 2014-crop is sold via forward contract for harvest delivery.

Cash-only marketers: 60% sold on old-crop. 30% of expected 2014-crop is sold via forward contract for harvest delivery.

 

Soybeans

Price action: Old-crop soybean futures closed 21 1/2 to 29 3/4 cents lower today. New-crop futures finished mostly 12 to 13 cents lower. Old-crop futures ended mid-range, while new-crop contracts closed in the lower third of their daily trading ranges.

Fundamental outlook: Talk of Chinese cancellations of soybean purchases heavily weighed on soybean futures today. While this talk was centered on cancellations of Brazilian purchases and wasn't confirmed, there is a lot of smoke. And typically where there's smoke, there's fire. Traders are worried Chinese buyers are overbooked and need to washout additional purchases, some of which may be from the United States. Chinese demand activity will remain traders' primary near-term focus.

Strong fund selling was also seen again today, with funds dumping a net 11,000 contracts (55 million bu.) of soybeans on the day. Over the past three days, funds have sold an estimated 27,000 contracts (135 million bu.) of soybeans.

Traders ignored news that Conab, the supply agency of the Brazilian government, slashed its Brazilian soybean crop estimate to 85.44 MMT from 90.01 MMT last month due to unfavorable late-season weather. The Conab estimate, while down sharply, is within the range of most private crop forecasts. As a result, it didn't have any "wow" factor and was overshadowed by the Chinese cancellation rumors.

Technical outlook: Traders are also actively unwinding bull spreads. After topping at $2.70 1/2 last Friday, the May/November soybean spread narrowed to $2.10 3/4 on the close today and hit an intra-day low of $1.97 3/4. Uptrending support from the fall and winter lows for this spread intersects around $1.61 Thursday and rises about a penny each day thereafter.

May soybean futures violated uptrending support from the late-January low today. The contract has completed a 38% retracement of that rally, but stopped shy of a full 50% retracement before bouncing well off session lows. A 50% retracement corresponds closely with flat support at the September high at $13.49.

Hedgers: 25% of expected 2014-crop is sold via forward contract for harvest delivery. 100% sold in the cash market on 2013-crop production.

Cash-only marketers: 25% of expected 2014-crop is sold via forward contract for harvest delivery. 90% priced on old-crop.

 

Wheat

Price action: Wheat futures were the leader to the upside in the grain markets, and bulls held the advantage all the way to the close. Futures forged new daily highs in the final minutes of trade. SRW wheat settled 22 1/2 to 24 3/4 cents higher; HRW wheat closed 17 to 19 1/4 cents higher; and HRS wheat finished with gains of 17 to 23 3/4 cents, excepting the front-month that settled steady.

Fundamental outlook: Wheat futures continue to benefit from political tensions in Ukraine and the possibility of importers turning to more reliable sources. While France is expected to garner the bulk of any such business, traders are optimistic the U.S. could also benefit.

The move through near-term levels of resistance helped the market to settle at new highs for the year. There is also thought to be some money flowing out of soybeans and into the grain markets, especially wheat.

Technical outlook: May SRW wheat closed above the 200-day moving average for the first time since Jan. 31, 2013, and its move through the December high of $6.79 1/4 turned that level into support. Bulls' next target is the psychological $7.00 mark, followed by the October high of $7.22 1/2.

Hedgers: 50% of expected 2014-crop is sold via forward contract for harvest delivery. 100% sold on 2013-crop.

Cash-only marketers: 90% sold on old-crop. 50% of expected 2014-crop is sold via forward contract for harvest delivery.

 

Cotton

Price action: Cotton futures ended split with May through October futures 7 to 55 points higher and deferreds posting similar losses. Most contracts finished in the upper half of today's trading range.

Fundamental outlook: The cotton market saw some mild bull spreading activity today, resulting in the split finish. Nearby contracts benefited from a surge in the wheat market today, along with a softer U.S. dollar index. In addition, the May and July contracts' dip through near-term support levels spurred bargain buying that pulled the market back into its week-long consolidated trading range.

But interest in adding long or short positions was relatively limited ahead of USDA's Weekly Export Sales Report tomorrow morning. Last week's tally snapped a streak of disappointing reports for the cotton market.

Technical outlook: May cotton futures matched but failed to move below support at the February high of 90.44 cents, marking this area as a key support level. Friday's high of 93.35 cents remains tough resistance.

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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