Crops Analysis (VIP) -- March 14, 2014

March 14, 2014 09:45 AM


Price action:
March corn futures ended 12 cents lower, but the rest of the market closed 1 to 4 1/4 cents higher amid bull spread unwinding. For the week, May corn ended 3 cents below last week's close and remained within the boundaries of the two-week consolidation range. December corn ended the week 2 1/2 cents above last week's close.

5-day outlook: Focus in the market on Monday will be on political tensions in the Black Sea region. A referendum on Sunday in Crimea on whether to remain a Ukrainian territory or become an independent sovereign state is expected to result in heightened political tensions (see "Evening Report" for more). If that outcome is realized, traders would likely add more premium into prices, as it raises expectations importers would turn to the U.S. to meet needs.

30-day outlook: The time between the March Supply & Demand Report and the month-end Prospective Plantings Report is often a time for traders to even positions and shift their focus from old- to new-crop supplies. The March 31 report will provide a benchmark from which traders will add or subtract acres based on economics and weather during planting.

90-day outlook: While the official start of spring is just around the corner, soils across the Midwest are still frozen, which raises concern about a timely start to the planting season. If planting is delayed, it would raise the risk of some acres being switched to soybeans.

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.


Price action: Soybean futures wrapped up a week of pressure with a downside day of trade. Futures settled low-range with losses of 14 3/4 cents in the front-month, while other contracts ended mid-range with losses of 5 to 7 3/4 cents. Funds sold 4,000 soybean contracts (20 million bu.) today.

5-day outlook: Soybean futures faced corrective pressure this week as traders unwound bull spreads and booked some profits. The market consolidated the latter half of the week as traders are hesitant to push prices sharply lower considering tight old-crop supplies and still-strong demand for U.S. soybeans. This should continue to limit the market's downside.

30-day outlook: A major source of demand is China, and recent poor economic data and order cancellation of South American shipments have raised some concern this may slow. There is talk cancellations could be tied to slowed feed demand due to bird flu and negative crushing margins. There may also be a tie to China's rejection of U.S. MIR 162 corn shipments (see "Evening Report"). The other major market driver will be the March 31 Prospective Plantings Report. Expectations are for soybean acreage to increase over year-ago.

90-day outlook: Attention will be on final planting efforts and early growing season conditions. Weather models have pointed to a cool, wet spring. If realized, this could lead to planting delays. Farmers may find traders less willing to push prices higher in response to any such delays, however, as they recall last year's crop overcame a slow start to the season. They may forget how crucial optimal weather at the close of the 2013-14 growing season was.

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.


Price action: Wheat futures closed mostly 10 to 14 cents higher today, locking in strong gains for the week and extending the rally from the winter lows.

5-day outlook: Wheat traders factored in growing uncertainty in the Ukraine/Russia situation this week. Tensions in the region could escalate as Crimea, a Ukrainian territory, is expected to vote Sunday to become an independent state, effectively becoming part of Russia. While it's uncertain how traders will react to this expected news, it won't be price-negative. But there is risk of profit-taking next week if traders don't see it as being more price-supportive.

30-day outlook: The other concern in the wheat market is the HRW crop. As the crop starts to break dormancy, traders are paying more attention to weather. The ongoing drought in the Southern Plains and some winterkill concerns in the Central Plains mean timely spring rains are needed. But when aren't they?

90-day outlook: There has been very little disruption in grain trade in Ukraine thus far, despite the geopolitical tensions. But exporters have reportedly stopped writing new contracts, suggesting a slowdown in grain movement from the country will be seen. The U.S. may pick up some of the business, but trade sources expect French wheat to be the first choice among importers having to replace Ukraine supplies.

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.


Price action: Cotton futures closed 10 to 98 points higher through the October contract, while the December contract forward posted slight losses. For the week, cotton futures posted slight gains.

5-day outlook: The cotton market is proving to be very resilient as there's just enough bullish news to limit selling pressure. But with that said, cotton futures are at price levels that have halted multiple rallies in the past. As a result, fresh bullish news is likely needed to extend the rally from last fall's lows.

30-day outlook: USDA's Prospective Plantings Report on March 31 will give traders a better idea of how much cotton acres are expected to increase this year. Of course intentions as of March 1 can, and likely will, change somewhat. After intentions are known, traders will add or subtract acres based on spring weather and price action.

90-day outlook: Chinese demand remains the big unknown longer-term. Global cotton stocks are forecast to be record-large for 2013-14, and China is holding roughly 60% of those supplies. But at the same time, Chinese imports continue as there are quality and price concerns with the Chinese state-owned reserves.

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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