Crops Analysis (VIP) -- November 21, 2012

November 21, 2012 08:34 AM


Price action: Corn futures traded in a narrow, choppy range today due to light trading volume and ended mixed with the December through July contracts fractionally to 2 cents lower and far-deferred months steady to marginally higher.

5-day outlook: Gulf basis levels surged this week due to tight supplies and low water levels on the Mississippi River that disrupted grain shipments. Traders are hopeful the rise also signaled an uptick in export demand. Shipping delays in Brazil are causing Asian buyers to turn to the U.S. for near-term needs. Whether proof export demand is improving materializes will drive market action next.

30-day outlook: The attractiveness of U.S. corn on the export market is influenced by the strength of the dollar. Thus, how fiscal cliff talks and euro-zone fiscal issues impact the dollar will be key as year-end approaches.

90-day outlook: Attention will shift to the 2013 growing season when the calendar flips. Soil moisture deficits are already worrisome, thus, precip this winter is crucial. Also, bidding for acres will begin to pick up early next year. The current corn:soybean price ratio favors corn.

Hedgers: 100% sold on 2012-crop in the cash market -- 90% for harvest delivery; 10% for March 2013 delivery. Also, Dec. $6.50 put options, which were purchased on 40% of 2012-crop for 31 1/2 cents, are held as a crop insurance hedge.

Cash-only marketers: 75% sold on 2012-crop -- 50% for harvest delivery; 10% for March 2013 delivery; and 15% for May 2013 delivery.




Price action: Soybean futures traded both sides of unchanged today, but favored a weaker tone for much of the daytime hours and finished mostly 2 1/2 to 5 1/2 cents lower.

5-day outlook: Firming basis and recent export activity signals global end-users (primarily China) see value in soybeans and soyoil at current levels. That suggests soybean futures should rally. But record South American production prospects and macro-economic concerns may continue to limit buying interest.

30-day outlook: While South American weather has improved the past couple of weeks, Pro Farmer South American consultant Dr. Michael Cordonnier says there is some concern the weather pattern could shift to too dry in southern Brazil. If that's the case, there would be a reason for traders to build premium into futures.

90-day outlook: Planting delays in Brazil this year mean the start of harvest won't be any earlier than normal. That means the U.S. will be the primary supplier of soybeans to the world until the February/March timeframe. That should keep a solid floor of support under the market unless there's a global economic meltdown.

Hedgers: 100% sold on 2012-crop in the cash market. No futures/options positions at this time. No 2013-crop sales advised yet.

Cash-only marketers: 75% sold on 2012-crop production for harvest delivery.




Price action: Wheat futures were choppy in thin, pre-holiday trade. Chicago and Kansas City futures mildly favored a weaker tone in a mixed close, while Minneapolis futures settled with a slightly firmer bias.

5-day outlook: Deteriorating crop conditions in the Plains are getting a lot of attention, but that hasn't translated into active buying interest. It's hard to get traders too concerned with crop prospects in the fall. Another downturn in HRW crop condition ratings is expected next Monday given persistent drought in the Plains.

30-day outlook: While Russia is indicating it will continue to ship wheat abroad, supplies are tight, and Ukraine will supposedly ban wheat exports from Dec. 1. This seemingly clears the way for the U.S. to garner more export business. But U.S. wheat is not competitively priced at current levels, suggesting other countries will get the bulk of the business from reduced Black Sea region exports.

90-day outlook: Given the very dry conditions in the Plains, above-normal winter precip is needed. Unfortunately, the winter forecast calls for ENSO-neutral conditions, which gives no indication conditions will dramatically improve. The longer the dry spell lasts in the Plains, the greater the need for timely rains next spring.

Hedgers: 75% cash sold on 2012-crop in the cash market.

Cash-only marketers: 75% of 2012-crop production is sold.




Price action: Cotton futures didn't stray far from unchanged today and ended narrowly mixed.

5-day outlook: A lack of fresh fundamental news for cotton this week resulted in a choppy trade, with action largely being driven by outside markets. That will likely be the case again next week, with attention split between fiscal cliff negotiations in the U.S. and euro-zone fiscal woes.

30-day outlook: Commodity markets, including cotton, could be handcuffed into year-end if lawmakers wait until the 11th hour to deal with the fiscal cliff. The resulting fluctuations in risk appetite and dollar strength will likely influence the cotton market. Otherwise, traders will watch to see if China continues its recent uptick in weekly cotton buys. While China's appetite for cotton isn't expected to be overly big, Chinese mills have proven to be a selective buyers on price weakness, limiting downside risk for futures.

90-day outlook: Upside potential should improve for the cotton market in 2013 as the coming growing season and bidding for acres shifts into focus. It's expected both corn and soybeans (and some other crops) will take more acres from cotton in 2013.

Hedgers: 50% priced on expected 2012-crop production via cash forward contract for harvest delivery. A breakout from that range is needed to spark a trending move.

Cash-only marketers: 50% priced on expected 2012-crop production via forward contract for harvest delivery.


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